Alcoa Beats Earnings Ahead of the Split

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Alcoa Inc. (NYSE: AA) reported second-quarter financial results after the markets closed on Monday. The company said that it had $0.15 in earnings per share (EPS) on $5.3 billion in revenue. Thomson Reuters had consensus estimates that called for $0.10 in EPS on $5.20 billion in revenue. The same period from last year had $0.19 in EPS on $5.90 billion in revenue.

Currently the company is on track to complete its separation in the second half of 2016. Alcoa will split into two companies. Arconic and Alcoa.

After the company’s separation, the innovation and technology-driven company Arconic will include Global Rolled Products, Engineered Products and Solutions and Transportation and Construction Solutions.

The rest of the company will become Alcoa Corporation, comprised of Bauxite, Alumina, Aluminum, Cast Products, and Energy –the Alumina and Primary Metals segments–as well as the rolling mill operations in Warrick, Indiana, and Saudi Arabia that are currently part of the Global Rolled Products segment.

In terms of its segments Alcoa reported:

  • Global Rolled Products had $68 million in after-tax operating income (ATOI), down from $76 million in the second quarter from last year.
  • Engineered Products and Solutions had record revenue of $1.5 billion, and record ATOI of $180 million, up 15% from last year.
  • Transportation and Construction Solutions had $46 million in ATOI, up 5% from last year.
  • Alumina generated $109 million in ATOI, an increase of $101 million from $8 million in the first quarter.
  • Primary Metals had $41 million in ATOI in the second quarter versus $14 million in the first quarter.

Klaus Kleinfeld, Alcoa’s chairman and CEO, commented on earnings:

As markets ever more rapidly evolve, we have made Alcoa increasingly agile; results continue to improve. In the face of a transforming aerospace market, we moved quickly to bring our costs down while capturing new opportunities. Contract wins continued as did our innovation leadership with the opening of a state-of-the-art metals powder plant geared toward rising demand for 3D-printed parts. Our automotive sheet revenue hit an all-time high. After substantially reshaping our Upstream segments they are now performing well even in a low pricing environment; we are building out our bauxite business and continue to win new supply contracts. Exceptional productivity and monetization of non-essential assets has put us in an excellent cash position. Our separation is on track for later this year.

On the books, Alcoa’s cash and cash equivalents totaled $1.93 billion at the end of the quarter, versus $1.92 billion at the end of 2015.

Shares of Alcoa closed Monday up 3.3% at $10.14, with a consensus analyst price target of $10.96 and a 52-week trading range of $6.14 to $11.50. Following the release of the earnings report, the stock was up 4.3% at $10.58 in the after-hours trading session.

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