Arconic Earnings Clobbered by Slashed Guidance

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Arconic Inc. (NYSE: ARNC) reported first-quarter 2018 results before the opening bell Monday morning. The aluminum products manufacturer said adjusted earnings per share (EPS) totaled $0.34 on revenues of $3.45 billion. In the same period last year, the company posted EPS of $0.33 and revenues of $3.19 billion. Analysts had forecast EPS of $0.33 and $3.34 billion in revenues.

What was sinking the stock Monday morning was updated full-year guidance. Arconic raised its revenue forecast slightly from a prior range of $13.4 billion to $13.7 billion to a new range of $13.7 billion to $14.0 billion.

The bad news is that the company cut its EPS estimate from a prior range of $1.45 to $1.55 to a new range of $1.17 to $1.27 and slashed its free cash flow estimate from about $500 million to about $250 million.

Analysts had forecast full-year EPS at $1.49 on revenues of $13.53 billion. For the second quarter, the consensus estimate called for EPS of $0.38 and revenues of $3.42 billion.

Calling 2018 a “transition year,” CEO Chip Blankenship said:

In the first quarter, Arconic delivered solid organic revenue growth and free cash flow in line with expectations. Operating income was negatively impacted by higher aluminum prices and performance shortfalls in our Rings, Disks and Global Rolled Products operations. … [I]t is clear that we have areas in need of operational improvement. To ensure all businesses execute consistently, we are deploying targeted capital and expertise to close gaps.

Revenues are higher but aluminum costs are rising and could rise further, depending on planned U.S. tariffs of 10% on imported aluminum. At one minute past midnight tonight, the Trump administration is supposed to impose a 10% tariff on aluminum imports from the countries that received temporary exemptions in March. These countries include Canada, Mexico, the European Union, Australia, Brazil and Argentina. Whether the president will do as he threatened or extend the exemption is anyone’s guess.

Arconic stock traded down more than 13% early Monday, at $19.40 in a new 52-week range of $19.17 to $31.17. The 12-month consensus price target is $29.22.

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