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Alcoa Expected to Fall Short in 2Q13, Says Citi and Goldman

NEW YORK ( TheStreet) - With second-quarter reports to be released after market closing Monday, analysts expect lower than estimated earnings for Alcoa (AA ) in the future.

The aluminum producer's shares rose 1% in midday trading Monday to $7.89, closing in on Goldman Sach's 6-month price target of $8.

Analysts from multiple firms have lowered their expectations for the company as the price of aluminum settled at $0.84 per pound. "We are shaving our 2Q estimate to $0.07[per share] vs consensus of $0.09 [per share] based on lower than expected LME spot pricing with some offsets from a stronger USD," wrote Citi analysts in a July 2nd report. Goldman Sachs had had previously estimated LME aluminum prices to be $0.91 per pound.

In its first-quarter, Alcoa reported an after tax income of $351 million. However, Citi bank expects operating income for the company to fall as low as $304 million this quarter. Citi sees revenue from engineered products dropping 10% to $169 million, and losing 2% of income from rolled products or $95 million in the third quarter. "[Third quarter] is typically a sequentially lower volume quarter, driven by Europe," Citi analysts explained in the report.

Despite retaining a "neutral" rating, Goldman Sachs analysts warranted cautioun. "[W]e see some near-term risk if AA is downgraded from IG to HY by another credit rating agency after Moody's recent downgrade, as news articles have speculated that this could increase the likelihood of removal of AA from the Dow 30, potentially triggering a sell-off by index funds," Goldman wrote in a note.

With second-quarter earnings approaching, investors are expected to focus on the balance sheet and cash burn. Investors will be interested in other matters such as equity issuance, portfolio structuring, market outlook and new projects aimed at producing growth. Such products could include aluminum-lithium and auto aluminum rolling.

-- Written by Robert Arenella in New York

>To contact the writer of this article, click here: Robert Arenella.

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