Coverage: Alcoa kicks off earnings season

Alcoa Inc. will report earnings before the market opens on Tuesday, its last before splitting into two companies.

Tomi Kilgore of MarketWatch.com has the preview:

There is some reason for investors to be optimistic ahead of the aluminum giant’s final report before it splits into two companies. On Oct. 5, Alcoa completed a one-for-three reverse stock split as the company prepared to split.

For one, earnings per share are expected to rise on a year-over-year basis for the first time in five quarters.

A recent increase in shipments of bauxite, which is the principal source of aluminum, and a multimonth uptrend in aluminum prices, bodes well for Alcoa’s results.

Analyst Timna Tanners at Bank of America Merrill Lynch said she expects a “small beat” in earnings expectations, boosted by favorable commodity price movements and continued supply discipline.

Steven Russolillo of The Wall Street Journal reports that the split won’t solve Alcoa’s issues:

The aluminum giant’s quarterly report Tuesday will be its final as a single company. A spinoff, which will keep the iconic Alcoa name, will house the legacy mining, smelting and refining units, all of which have been hurt by weak aluminum prices in recent years.

But continuing corporate entity Arconic Corp., consisting of the faster-growing businesses that supply the aerospace and automotive markets, looks less compelling a little more than a year after the split was announced.

 A flood of cheap Chinese aluminum has hurt the commodity unit, while a boom in global aerospace in recent years played a role in the thinking behind the decision to become two companies. Worries about aircraft demand suggest the growth rates in the “value-add” businesses have fallen, though—a trend reflected in downbeat analyst forecasts. Those polled by FactSet forecast adjusted earnings of 35 cents a share in the third quarter. That estimate was 61 cents a share last summer and 96 cents in early 2015. Year over year, revenue is expected to have declined 5% to $5.3 billion.

Joe Deaux of Bloomberg News says the earnings are  chance to show progress in the parts business:

Arconic — made up of some but not all of the global rolled products, engineered products and solutions, and transportation and construction solutions businesses — will still have automotive demand to help counter any slowdown in aerospace sales. The split will also free Arconic from many of the uncertainties of the commodities businesses.

Alcoa has been focusing on cost control and streamlining operations ahead of the split, Ken Hoffman and Sean Gilmartin, analysts at Bloomberg Intelligence, said in a note.

The new Alcoa Corp. will begin its corporate life with reduced debt and may benefit from more than nine years of production cuts, curtailments and investments at its global operations.

Cost cutting has helped buffer it from the impact of lower aluminum prices. In the earnings report released in July, the so-called upstream units outperformed some analysts’ estimates even after prices for aluminum and its precursors fell from a year earlier.