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Alcoa’s Upstream Performance In Q1 2016

Published 05/05/2016, 03:25 AM
Updated 03/09/2019, 08:30 AM

Alcoa’s upstream segment made up of its Bauxite, Alumina, Aluminum, Energy, and Casting units. It also includes businesses under Alcoa’s Primary and Alumina segment.

The company’s upstream revenues have been declining as the mix of lesser shipments and lower commodity prices have negatively affected Alcoa’s revenues within the past few quarters. Other aluminum manufacturers such as Century Aluminum (NASDAQ:CENX) and Norsk Hydro (OTC:NHYDY) also posted weaker revenues in the first quarter of fiscal year 2016.

Alcoa (NYSE:AA) has been exerting great effort to establish a globally competitive commodity business. An effective way to become more competitive in the commodity industry is to cut down costs, which may lead to difficult decisions such as shutting down high-cost capacities. While commodity contractors don’t have much authority over commodity prices, they can still control their cost positioning in the industry to some extent. The aluminum giant has been aggressive in trimming its high costs to endure the existing pricing environment.

Moreover, the company has been negotiating earnestly with state officials and power suppliers to obtain competitively priced power, and continue operation in some of its smelters located in the United States.

The upstream revenue slip was practically expected by market watchers. Alcoa’s upstream revenues were generally in line with expectations. However, it missed consensus revenue estimate due to lower than expected downstream revenues.

During the first quarter, Alcoa’s upstream business was able to generate an after-tax operating income of $22 million, and contributed $185 million to the company’s consolidated first quarter earnings before interest, taxes, depreciation, and amortization.

Alcoa’s upstream segment accounted for 33 percent of the company’s first quarter revenues. Its input to the company’s adjusted EBITDA was 25 percent, but the segment’s earnings per share is seen to improve notably in the second quarter.

On the other hand, Alcoa projects its Primary Metal segment’s after-tax operating income to climb by $10 million in the second quarter, eliminating any influence from pricing and currency. Recently, aluminum prices have been fairly strong and if this momentum continues in May, the Primary Metals segment’s earnings could improve essentially in the second quarter of 2016.

Meanwhile, the company is expecting its Alumina segment’s after-tax operating to increase by $15 million, despite forecasts that production will be flat in the second quarter.

Alcoa prices 85 percent of its third-party alumina sales on the alumina price index. API prices have increased massively over the past month. In addition, as API sales come with a one month lag to spot prices, the company will also earn from higher alumina prices in March.The pricing lag should benefit the Alumina segment in the second quarter after weighing down the company’s first quarter earnings.

Alcoa Ex-Dividend Date Set for May 04

Alcoa will start trading ex-dividend on Wednesday. A cash dividend payment of $0.03 per share is set to be paid on May 25. Shareholders who acquired the stock ahead of the ex-dividend date qualify for a cash dividend compensation. This marks the 29th quarter that Alcoa has paid the same dividend. With an existing stock price of $10.96, the dividend yield is 1.09 percent.

The current stock price indicates a -23.09 percent decline from the 52 week high of $14.25 and a 78.5 percent hike over the 52 week low of $6.14.

Alcoa Closes Deal to Prevent Washington Smelter Cuts

Alcoa announced that it will no longer cut operations at a Washington smelter after finalizing an agreement with its power provider.

According to reports, the Bonneville Power Administration and Alcoa revised their supply deal, with alterations effective from July 1 through February 14, 2018.

The deal, merged with $3 million of employee training from the state of Washington, are the main contributors in the smelter’s competitiveness. The facility in Washington has a capacity of 279,000 metric tons per year, according to Alcoa.

Alcoa is one of the aluminum smelters that have curtailed operations in the United States as aluminum prices plunged amid a global production glut.

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