Higher mining costs. Will Alcoa earnings surprise the market?

Alcoa (AA.US), one of the largest producers of aluminum, alumina and bauxite, will report financial results after today's Wall Street session. A weaker macro outlook, global recession and higher costs could hit its business. Analysts expect revenue and earnings per share to decline in Q4 2022.

Forecasts:

Revenue: $2.59 billion (down 22.4% y/y)

Earnings per share (EPS): -$0.76 vs -$0.33 in Q3 and $2.56 in Q4 2021 (130% y/y decline)

EBITDA: $107 million (down 48.9% k/k and 88% y/y)

EBITDA margin: 4% vs. 7.4% in Q3 2023 and 26.8% in Q4 2021

• S&P analysts expect weaker revenues in Q4 2022. According to them, revenues will fall 20% y/y in Q4, falling 8% in Q3 2022. For the previous six quarters, the company had recorded revenue growth until Q2 2022. A drop below already low expectations could be painful for the stock price;
• At the Global Markets&Mining conference held by Goldman Sachs in November, the company acknowledged that raw material and energy costs remained high. This could indicate strong cost pressures in Q4. According to Goldman Sachs, cost pressures among mining companies did not change positively at the end of the year, and energy costs didn't fall below pre-Ukraine war levels;
• In January, the company announced a 30% production cut at its Kwinana aluminum mine, in Australia. The gas supply problem makes company unable to predict when production will return at full capacity;
• The average target price according to analysts is $47, and 8 of 12 analysts tracking Alcoa have lowered their earnings forecasts for Q4 2022. In the face of rather pessimistic forecasts, any surprise in Alcoa's results could trigger a big reaction.

Alcoa shares (AA.US), W1 interval. The company's shares are hovering at historically significant price levels around $54, from which a downward impulse has often been triggered (2009, 2010, 2014, 2018). At the same time, the bullish intersection of the SMA100 and SMA200 averages, the so-called 'golden cross', may herald a longer rebound, provided the company manages to beat analysts' expectations and increase earnings despite rising costs. Source: xStation5