Alcoa Falls Most in Three Months After Caution Flag on Earnings

(Bloomberg) -- Alcoa Corp. shares fell the most in three months after the company warned that higher costs may weigh on its earnings this quarter, muting optimism from better-than-expected results at the end of 2020.

The biggest U.S. aluminum maker “anticipates lower quarterly performance” because of rising costs in its alumina business and lower selling prices for bauxite, it said in a statement Wednesday. Analysts also raised concern about the company’s free cash flow, which was negative last quarter. Alcoa shares dropped as much as 10%.

The caution signal comes as Alcoa works to recover from coronavirus shutdowns at automakers and other customers that crimped demand earlier last year. The company said that while the magnitude and duration of the pandemic is unknown, it expects aluminum shipments of 2.7 million to 2.8 million metric tons this year, a drop from the 3 million tons the company shipped in 2020.

Alcoa’s free cash flow remains “elusive,” and its near-term headwinds collectively mitigate the benefits from higher aluminum and alumina prices, BMO Capital Markets analyst David Gagliano said in a note.

Alcoa shares fell 9.1% to $20.76 at 10:23 a.m. in New York, after falling to as low as $20.55.

The manufacturer has set a high bar for stock performance going into 2021, with its shares almost doubling in the final three months 2020, the best quarterly performance in records going back to 1980. Investors have bet that mending global economies and a receding pandemic will stoke metal consumption.

Alcoa said on a conference call Wednesday that it expects less volatility and improved markets in 2021, and projected global aluminum consumption to rise 7% in 2021.

Benchmark aluminum prices posted the biggest gain in the second half of a year since 2010 as manufacturers worldwide started to recover from the virus shutdowns. The metal had fallen to a four-year low in April as the pandemic crimped demand from automakers and other customers.

Fourth Quarter

Alcoa reported fourth-quarter earnings that beat analysts’ expectations on the aluminum-price surge and as sales continued to improve from the reopening of economies. Earnings before interest, taxes, depreciation and amortization of $361 million, according to the statement Wednesday. That was higher than the $348.2 million average estimate of six analysts surveyed by Bloomberg.

“First-quarter guidance was maybe slightly weak based on cost items,” Alexander Hacking, an analyst at Citigroup Global Markets, said in a note to clients. “We remain Neutral with Alcoa’s about 5% attributable free-cash-flow lower than other names in the sector.”

Alcoa said on the conference call with analysts that sustaining $375 million in capital expenditures is “reasonable” the next few years. The company also said it’s keeping its $2 billion-$2.5 billion net-debt target.

The company said in late 2019 that it intended to pursue sales of non-core assets that would generate $500 million and $1 billion in net proceeds. It managed to get within that range after selling a rolling-mill business for $670 million and a waste-management facility for $250 million.

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