Alcoa Shares Surge 7% After Third-Quarter Profit Tops Forecasts and Cash Generation Impresses Investors

NEW YORK — Shares of Alcoa jumped more than 7% on Friday after the aluminum producer reported third-quarter earnings that beat Wall Street expectations, along with strong cash flow and progress on a major acquisition.

Alcoa shares were up $2.90, or 7.16%, at $43.31 in late-morning trading on the New York Stock Exchange, with more than 6 million shares changing hands, well above the stock's average volume. The company's market value rose to about $11.5 billion.

The stock had closed Thursday at $40.42 before the results were released after the market close.

Earnings beat

Alcoa reported adjusted earnings of $1.82 per share, well above analyst estimates of about $1.54. Adjusted net income was $485 million, compared with a loss of $6 million a year earlier.

Net income attributable to Alcoa rose to $483 million, or $1.81 per share, from $232 million, or 88 cents, a year earlier and $407 million in the second quarter.

Revenue rose 24% from a year earlier to $3.7 billion, though it fell short of the roughly $3.78 billion analysts expected and was down from the second quarter as aluminum prices declined.

Adjusted earnings before interest, taxes, depreciation and amortization, excluding special items, reached $789 million, up from $270 million a year earlier.

Strong cash flow

Alcoa generated $643 million in cash from operations and $472 million in free cash flow during the quarter. It ended the period with $4.4 billion in cash, including $2.6 billion in financing obtained for its planned acquisition of South32's interests in bauxite, alumina and aluminum assets, known as AliGroup.

South32 shareholders approved the deal on Thursday.

CEO William Oplinger said the company advanced the acquisition, "delivered improved refinery performance, and increased production across our smelting portfolio."

Operations improve

Alcoa said it completed a significant performance recovery at its Pinjarra alumina refinery in Australia and increased aluminum production, with several smelters setting year-to-date production records.

Its average realized aluminum price fell to $4,527 a tonne from $4,752 in the second quarter, but was well above $3,374 a year earlier.

Management also noted that global aluminum inventories remain historically low, a factor that could support prices.

Oplinger began the earnings call by addressing a fatality on Sept. 16 at the company's Alumar smelter in Brazil.

Outlook

For the fourth quarter, Alcoa expects its Aluminum segment to face about $30 million in unfavorable impacts from higher raw material costs and planned maintenance.

What's next

Investors will watch for completion of the AliGroup acquisition, which would significantly expand Alcoa's operations, as well as trends in aluminum and alumina prices.