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Arconic (ARNC) Q4 Earnings Preview: What's in the Cards?
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Arconic Inc. , a global leader in multi-material, precision engineered products and solutions for a variety of industries, is slated to release its fourth-quarter 2017 results before the bell on Feb 5.
Arconic saw lower profits in the third quarter of 2017, hurt by costs related to higher aluminum prices. Adjusted earnings of 25 cents per share for the quarter lagged the Zacks Consensus Estimate of 27 cents.
Revenues rose around 3% year over year to $3,236 million in the third quarter, driven by improved volumes across all segments. Sales topped the Zacks Consensus Estimate of $3,129 million.
Arconic’s shares have gained around 19.3% over a year, modestly outperforming the roughly 18.7% gain recorded by the industry it belongs to.
Let’s see how things are shaping up for this announcement.
Factors at Play
Arconic, in October 2017, reaffirmed its full-year 2017 adjusted earnings guidance of $1.15-$1.20 per share. However, the company updated its revenue and capital expenditure outlook for 2017.
The company raised its revenue expectations for 2017 to the range of $12.6-$12.8 billion from $12.3-$12.7 billion expected earlier. Arconic also revised its capital expenditure forecast for the year to roughly $600 million from its prior view of up to $650 million.
The Zacks Consensus Estimate for revenues for Arconic for the fourth quarter stands at $3,070 million, reflecting a year over year growth of 3.5%.
Arconic is focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line in the fourth quarter. The company achieved net cost saving of 1.5% of revenues in the last reported quarter and is expected to continue to benefit in the December quarter.
In particular, the company expects its selling, general administrative, and other expenses (SG&A) to be lower by around $40 million in the December quarter. For the full year, the company sees a $100 million year over year reduction in SG&A.
Arconic is also seeing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy. It is well placed to gain from major contract wins in aerospace. Arconic is witnessing strong momentum in commercial aero engines with sales rising 9% year over year in the third quarter. The company expects commercial aero engine revenues to be up 5% in the fourth quarter on a sequential comparison basis.
However, Arconic faces headwind from charges associated with higher aluminum prices, driven by LIFO (last-in, first-out) method of inventory accounting, increased processing costs and metal lag. Charges of around $60 million hurt Arconic's profits in the third quarter and remain a headwind in the fourth, albeit to a lesser extent. The company sees an unfavorable impact of around $90 million from these charges (LIFO and metal lag) for 2017.
Arconic, in December 2017, said that it is divesting its Latin America Extrusions (LAE) business, a part of its Transportation and Construction Solutions segment. The divestment of the LAE business is part of the company’s sustained initiatives to streamline its business portfolio, focus on its higher-margin products, reduce complexity and drive profitable growth.
Arconic noted that the ownership of the business will be transferred to a subsidiary of Hydro Extruded Solutions AS following customary regulatory and anti-trust reviews. The transaction is expected to consummate in first-half 2018.
Per the deal terms, Arconic will get roughly $10 million in cash for the LAE business, subject to working capital and other adjustments. The company will recognize a restructuring-related charge representing the loss on sale of roughly $40 million (post-tax) or 8 cents per share in fourth-quarter 2017. The charge is mainly associated with the non-cash impairment of the net book value of the LAE business.
Our proven model does not conclusively show that Arconic is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:
Zacks ESP: The Earnings ESP for Arconic is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 24 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Arconic currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.
Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies in the basic materials space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Huntsman Corporation (HUN - Free Report) has an Earnings ESP of +3.27% and carries a Zacks Rank #2.
LyondellBasell Industries NV (LYB - Free Report) has an Earnings ESP of +0.55% and a Zacks Rank #2.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Arconic (ARNC) Q4 Earnings Preview: What's in the Cards?
Arconic Inc. , a global leader in multi-material, precision engineered products and solutions for a variety of industries, is slated to release its fourth-quarter 2017 results before the bell on Feb 5.
Arconic saw lower profits in the third quarter of 2017, hurt by costs related to higher aluminum prices. Adjusted earnings of 25 cents per share for the quarter lagged the Zacks Consensus Estimate of 27 cents.
Revenues rose around 3% year over year to $3,236 million in the third quarter, driven by improved volumes across all segments. Sales topped the Zacks Consensus Estimate of $3,129 million.
Arconic’s shares have gained around 19.3% over a year, modestly outperforming the roughly 18.7% gain recorded by the industry it belongs to.
Let’s see how things are shaping up for this announcement.
Factors at Play
Arconic, in October 2017, reaffirmed its full-year 2017 adjusted earnings guidance of $1.15-$1.20 per share. However, the company updated its revenue and capital expenditure outlook for 2017.
The company raised its revenue expectations for 2017 to the range of $12.6-$12.8 billion from $12.3-$12.7 billion expected earlier. Arconic also revised its capital expenditure forecast for the year to roughly $600 million from its prior view of up to $650 million.
The Zacks Consensus Estimate for revenues for Arconic for the fourth quarter stands at $3,070 million, reflecting a year over year growth of 3.5%.
Arconic is focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line in the fourth quarter. The company achieved net cost saving of 1.5% of revenues in the last reported quarter and is expected to continue to benefit in the December quarter.
In particular, the company expects its selling, general administrative, and other expenses (SG&A) to be lower by around $40 million in the December quarter. For the full year, the company sees a $100 million year over year reduction in SG&A.
Arconic is also seeing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy. It is well placed to gain from major contract wins in aerospace. Arconic is witnessing strong momentum in commercial aero engines with sales rising 9% year over year in the third quarter. The company expects commercial aero engine revenues to be up 5% in the fourth quarter on a sequential comparison basis.
However, Arconic faces headwind from charges associated with higher aluminum prices, driven by LIFO (last-in, first-out) method of inventory accounting, increased processing costs and metal lag. Charges of around $60 million hurt Arconic's profits in the third quarter and remain a headwind in the fourth, albeit to a lesser extent. The company sees an unfavorable impact of around $90 million from these charges (LIFO and metal lag) for 2017.
Arconic, in December 2017, said that it is divesting its Latin America Extrusions (LAE) business, a part of its Transportation and Construction Solutions segment. The divestment of the LAE business is part of the company’s sustained initiatives to streamline its business portfolio, focus on its higher-margin products, reduce complexity and drive profitable growth.
Arconic noted that the ownership of the business will be transferred to a subsidiary of Hydro Extruded Solutions AS following customary regulatory and anti-trust reviews. The transaction is expected to consummate in first-half 2018.
Per the deal terms, Arconic will get roughly $10 million in cash for the LAE business, subject to working capital and other adjustments. The company will recognize a restructuring-related charge representing the loss on sale of roughly $40 million (post-tax) or 8 cents per share in fourth-quarter 2017. The charge is mainly associated with the non-cash impairment of the net book value of the LAE business.
Arconic Inc. Price and Consensus
Arconic Inc. Price and Consensus | Arconic Inc. Quote
Earnings Whispers
Our proven model does not conclusively show that Arconic is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:
Zacks ESP: The Earnings ESP for Arconic is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 24 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Arconic currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.
Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies in the basic materials space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Huntsman Corporation (HUN - Free Report) has an Earnings ESP of +3.27% and carries a Zacks Rank #2.
Agnico Eagle Mines Limited (AEM - Free Report) has an Earnings ESP of +18.99% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
LyondellBasell Industries NV (LYB - Free Report) has an Earnings ESP of +0.55% and a Zacks Rank #2.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>