Alcoa Inc. is scheduled to kick off the first-quarter earnings reporting season on Monday, after the market closes.
Wall Street analysts are expecting a third straight quarter of declines in both earnings and revenue, given weakness in aluminum prices, which would mark a fitting start to what is projected to be the fourth straight quarter of earnings declines for the S&P 500 companies.
Despite several announcements from Alcoa AA, +4.06% aimed at boosting results, such as supply contracts and divestitures, and its plan to split itself into separate companies later this year, estimates have come down considerably over the last few months.
Earnings: Alcoa is expected to report earnings per share of 2 cents, according to the average estimate of analysts surveyed by FactSet, well below earnings of 28 cents a share, in the same period a year ago. That is down from FactSet EPS consensus expectations of 8 cents at the end of 2015.
Estimize, which surveys sell-side analysts like FactSet, but also hedge-fund executives, brokerages and buy-side analysts, is also expecting 2 cents per share.
Alcoa had beat EPS expectations for the first quarter, after missing the previous two quarters.
Revenue: The FactSet consensus for revenue is $5.2 billion, down from $5.82 billion a year ago. The consensus has declined from $5.48 billion at the beginning of the quarter. Those crowdsourced by Estimize are projecting, on average, revenue of $5.3 billion.
Alcoa missed revenue expectations the last two quarters.
Stock price: Investors have been very disappointed with Alcoa’s reports the past two quarters, with the stock tumbling 9% on Jan. 12 after fourth-quarter results and 6.8% on Oct. 9 after third-quarter results.
On Friday, the shares closed down 1.2%, reversing an early intraday gain of as much as 2.6%. Although they have rocketed 39% since closing at a near seven-year low of $6.74 on Jan. 19, they had still lost 5.1% year to date, while the S&P 500 indexSPX, +0.34% inched up 0.1%.
The stock rose 1.2% in premarket trade Monday.
The average ratings of the analysts surveyed by FactSet is the equivalent of buy, and the average stock price target of $10.34 was 10% above current prices.
Other issues: Investors should keep an eye on Alcoa’s estimate for global aluminum demand growth, since the prices of aluminum and Alcoa’s stock tend to move together. In January, Alcoa said it expected global aluminum demand of 60.5 million metric tons in 2016, up 6% from 2015.
The company also said in January that it expects global aerospace sales to increase 8% to 9% this year, building and construction market sales to rise 4% to 6% and the heavy duty truck and trailer market to be down 3% to up 1%.
“Given our subdued outlook for the aluminium market, we maintain our sector perform recommendation,” analyst Fraser Phillips at RBC Capital wrote in a note to clients.
Other areas of interest include Alcoa’s engineered products and solutions (EPS) and transportation and construction solutions (TCS) businesses, which are expected to continue to show growth. EPS revenue increased 26% year over year in the fourth quarter to $1.41 billion, while TCS sales grew 5% to $40 million.
On a bright note, RBC’s Phillips said he expects Alcoa’s cash flow to remain healthy even if aluminum prices remain at current low prices. “Our scenario analysis indicates that at current commodity prices and currencies Alcoa is well-funded through 2018 assuming the company can refinance its debt maturities,” Phillips wrote.