On The Fly: What to watch in Alcoa's earnings report
Alcoa (AA) scheduled to report results of its third fiscal quarter before the market opens on Tuesday, October 11, with a conference call scheduled for 8:30 am ET. What to watch for: 1. LAST EARNINGS RELEASE BEFORE SEPARATION: On September 29, Alcoa's board approved the completion of the company's separation into two independent, publicly-traded companies, Alcoa and Arconic. Arconic, the company's downstream business, will trade under the symbol "ARNC" and Alcoa, the company's upstream business, will keep the symbol "AA." The separation is scheduled to become effective before the opening bell on November 1 and Klaus Kleinfeld will serve as Arconic chairman and CEO. Michael Morris will become non-executive chairman of Alcoa Corporation and Roy Harvey, current group president of the Alcoa Global Primary Products business, will be its CEO. 2. COMPANY STRUCTURE: According to Market Watch, analysts will be looking for more clarification on Alcoa's split. Specifically, how the companies will be separated. Market Watch noted that analysts are saying the separation will force the company's mining and smelting operations to function more efficiently, as they will not be able to "hide behind profits in other units." Market Watch noted that the spinoff could create more work and will cost more money, citing Morningstar analyst Andrew Lane, who said, "For example, you might need more people to manage procurement across two companies." 3. ANALYST EXPECTATIONS: On October 10, Goldman analyst Andrew Quail released a note saying he expects Alcoa's third quarter results to be above analyst estimates, driven by lower commodity prices. Quail said, "Lower commodity prices and continued pressure in certain downstream end markets drive our expectation for earnings to moderate versus the second quarter of 2016." Quail maintained his Neutral rating on the stock as well as a six-month $30 price target. On October 6, Stifel analyst Paul Forward updated the firm's model to reflect the new share count. Forward said the firm is maintaining its $39 per share, split-adjusted, price target based on the company's Enterprise Value/Earnings Before Interest, Tax, Depreciation, and Amortization multiples on each of the company's five segments. The firm has a Buy rating on the stock. 4. REVERSE STOCK SPLIT: On October 5, Alcoa's shareholders approved a 1-for-3 reverse stock split and share reduction. Its shares have been reduced from 1.8B shares to 600,000 shares. The reverse split and share reduction were completed that day and began trading on a split-adjusted basis on October 6. Shares are currently trading above $31 per share on a split-adjusted basis.