Q2 Kickoff: Alcoa (AA) Investors to Focus on LME Prices, Downstream Ops, and China

Alcoa (NYSE: AA) shares are looking weaker as it aims to unofficially kick off the second-quarter 2012 earnings season on Monday, July 9th, after markets close.

The Street is looking for Alcoa to report earnings of 9 cents per share on revenue of $6 billion. Earnings would be a 72 percent drop from 32 cents reported in the same period last year and dip from 10 cents per share earned last quarter.

Traders have been tough on Alcoa amid flailing commodities markets and uncertain demand expectations. Since reporting surprise earnings last quarter, shares are still down about 7 percent. Overall, Alcoa shares fell 12.4 percent through the quarter to $8.75 at the end of June. For 2012, Alcoa is slightly higher, up about 0.7 percent.

Data from Bloomberg currently has eight analysts at Buy on Alcoa, 10 with a Neutral rating, and three at Sell. The Street's price target average is $11, ranging from $8 to $14.65. Analysts' average price target suggests potentially 28 percent of upside over the next 12 months.

Analyst Comments

• Goldman Sachs sees EPS of 7 cents, which was cut from 17 cents on June 20th. Reasoning behind the move was mark-to-market prices on aluminum of 92 cents per pound, versus the firm's estimate of $1.05.
  
  Goldman notes that, although there is oversupply in China and input prices have dropped, many markets are seeing record premiums on warehousing deals and inability of customers to get their hands on aluminum. Looking ahead, Goldman is a little bearish on Alcoa, saying aerospace and autos will help downstream functions, but it won't be enough to offset alumina and aluminum losses.
  
  
• Deutsche Bank is looking for EPS of 4 cents from Alcoa. The drop in EPS is expected to be related to a 6 cent per pound fall in LME aluminum prices to 92 cents per pound (as mentioned above), offset by a 1 cent per pound gain in aluminum premia.
  
  The firm commented, "Additionally, earnings will be impacted by lower QoQ aluminum/alumina volumes, $10m maintenance at Alumina division, $30m energy and Massena fire impacts, partly off-set by $10m lower QoQ raw material benefits."
  
  Deutsche will be keeping an eye on comments about aluminum shuts in China, alumina market fundamentals post-Indonesia's 20 percent export tax on bauxite, and status of Alcoa's review of high cost smelters in Australia (Point Henry) and Brazil.
  
  
• Dahlman Rose also recently lowered its EPS outlook for the second-quarter to 3 cents. The firm sees currency movements to offset about $300 million in losses tied to LME price declines.
  
  Alcoa's Global Rolled Products and Engineered Products and Solutions units should drive gains, helping to offset weakness in the upstream business. Commenting on the expectations, Dahlman said, "We expect margins to decline slightly in the rolled products segment due to a seasonal increase in can stock production (lower margin product), though remain at healthy levels. Performance in the EPS segment is expected to remain strong, as productivity gains help offset the impacts of the Massena fire ($8-$12 MM ATOI)."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Alcoa's past performance at Streetinsider's Alcoa's Income Statement.

In addition, the following is a list of the more notable earnings coming up over the next few weeks:

• July 12th - Google (Nasdaq: GOOG)
  
  
• July 13th - JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC)
  
  
• July 16th - Citigroup (NYSE: C), Wynn Resorts (Nasdaq: WYNN)
  
  
• July 17th - Chipotle (NYSE: CMG), Goldman Sachs (NYSE: GS), Intel (Nasdaq: INTC), Intuitive Surgical (Nasdaq: ISRG), Coca-Cola (NYSE: KO), Mosaic (NYSE: MOS), Charles Schwab (NYSE: SCHW), Yahoo! (Nasdaq: YHOO)
  
  
• July 18th - Bank of America (NYSE: BAC), Bank of NY Mellon (NYSE: BK), CA (Nasdaq: CA), eBay (Nasdaq: EBAY), International Business Machines (NYSE: IBM), Johnson Controls (NYSE: JCI), QUALCOMM (Nasdaq: QCOM), United Technologies (NYSE: UTX), Yum! Brands (NYSE: YUM)
  
  
• July 19th - Advanced Micro (NYSE: AMD), Baxter (NYSE: BAX), Cirrus Logic (Nasdaq: CRUS), US Airways (NYSE: LCC), Southwest Air (NYSE: LUV), Microsoft (Nasdaq: MSFT), Nokia (NYSE: NOK), Rambus (Nasdaq: RMBS), Travelzoo (Nasdaq: TZOO), Verizon (NYSE: VZ)
  
  
• July 20th - General Electric (NYSE: GE), Ingersoll-Rand (NYSE: IR)
  
  
• July 23rd - Halliburton (NYSE: HAL), Hasbro (Nasdaq: HAS)
  
  
• July 24th - AT&T (NYSE: T), Biogen Idec (Nasdaq: BIIB), Under Armour (NYSE: UA), Western Union (NYSE: WU), Apple (Nasdaq: AAPL)
  
  
• July 25th - Boeing (NYSE: BA), ConocoPhillips (NYSE: COP), PepsiCo (NYSE: PEP), Visa (NYSE: V), Whole Foods (NYSE: WFM), *Ford (NYSE: F)
  
  
• July 26th - International Paper (NYSE: IP), Metro PCS (NYSE: PCS), Facebook (Nasdaq: FB)
  
  
• July 27th - Chevron (NYSE: CVX), Merck (NYSE: MRK)
  
  
• July 31st - Pfizer (NYSE: PFE)

* Ford is projected based on market data.

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