Excluding unusual and forex items, Alcan (AL - commentary - Cramer's Take) reported fiscal third-quarter fully-diluted earnings (ended September) of $1.12 (-8% vs. the same quarter last year/-16% negative surprise) on revenue of $6.2 billion (+8% vs. the same quarter last year/+2% positive surprise). Revenue growth reflected higher prices, product mix and volumes across most businesses. Top line growth did not translate down to the bottom line due to strong Canadian dollar currency translation losses, higher raw material costs/operating costs and a rather hefty jump in recognized tax expense. At this point, though, it all doesn't really matter.
Climbing Up the Food Chain
Reflecting Rio Tinto's (RTP - commentary - Cramer's Take) recent acquisition of supra-majority shares, this earnings report is the last for AL as an independent company.
Ironically, Rio Tinto may also soon see its last reporting season as an independent company. BHP Billiton (BHP - commentary - Cramer's Take) approached Rio Tinto twice in the last week. Rio Tinto understandably rejected BHP's offer as undervalued, given recent industry deal premia. BHP will not likely sulk unrequited. Should another offer appear and be accepted or approved, the resulting BHP Billiton-Rio Tinto-Alcan entity would have a market cap over $350 billion and control circa 40% of the global iron ore market.
For now, See You in Rio
AL traded up slightly to $100.98 -- imperceptibly different from Rio Tinto's offer price (offer period now expired). Given AL's relative smaller size and historical track record, it was clearly unprepared to compete in its global industry's rapidly consolidating space.
AL shareholders are fortunate to have received an ultimate takeover deal with a 100% premium over the average first-half 2007 stock price.
The new Rio Tinto-Alcan is now the world's largest and increasingly dominant aluminum and bauxite producer. The new entity will also benefit from new operating synergies, potentially augmenting future EPS growth. The question is will Rio be a final destination or simply a pit stop?
Alcan Preview: Don't Call Me AL
Alcan (AL - commentary - Cramer's Take) is scheduled to report third-quarter 2007 earnings (ending September) on Wednesday, Nov. 7. The current consensus estimate for fully diluted quarterly EPS is $1.31 (+8% vs. same quarter last year, excluding extraordinary items) on revenue of $6.1 billion (+6% vs. same quarter last year). Alcan has a poor record of meeting or beating expectations, despite a buoyant metals pricing environment, and current quarterly estimates have downgraded 10% over the last three months. For what is worth, a negative surprise is again likely this time around.
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