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Arconic (ARNC) Q2 Earnings Preview: What's in the Cards?
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Arconic Inc. is slated to release its second-quarter 2018 results before the bell on Jul 31.
Arconic’s adjusted earnings of 34 cents per share for the first quarter of 2018 topped the Zacks Consensus Estimate of 32 cents, translating into a 6.3% positive surprise.
Revenues rose around 8% year over year to $3,445 million in the quarter, also beating Zacks Consensus Estimate of $3,329.6 million.
Arconic beat estimates in three of the trailing four quarters while missed on the other occasion. In this timeframe, it delivered an average positive surprise of 11.6%.
Arconic has underperformed the industry it belongs to over a year. The company's shares have lost around 14.9% over this period, compared with roughly 4.2% growth recorded by the industry.
Let’s see how things are shaping up for this announcement.
Factors at Play
Arconic, in April, provided its updated full-year 2018 guidance. The company raised its revenues expectations for 2018 to the range of $13.7-$14 billion from $13.4-$13.7 billion projected earlier. However, it lowered adjusted earnings outlook to the range of $1.17-$1.27 per share from $1.45-$1.55. The company also cut free cash flow guidance to around $250 million from its prior view of roughly $500 million.
The Zacks Consensus Estimate for revenues for Arconic for the second quarter stands at $3,475 million, reflecting an expected year over year growth of 6.6%.
Arconic is focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line. The company gained from net cost saving in the last reported quarter and is expected to continue to benefit from its cost actions in the June quarter.
Arconic is also seeing strong momentum in automotive, driven by the transition of the auto industry to lightweighting. Moreover, Arconic is witnessing 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. The momentum in aerospace is expected to continue in the second quarter.
However, Arconic is exposed to 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. Aluminum prices rose 20% in the first quarter and hurt operating margin by $37 million. Prices have increased sharply in the wake of aluminum tariffs. The company expects to face an unfavorable impact of $45-$55 million from elevated aluminum prices in the second quarter.
Arconic is also seeing weak sales in industrial gas turbine market due to soft market conditions. The market was down 7% in 2017 and the company expects at least 40% decline in 2018.
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 29 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.
Stocks to Consider
Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
Orion Engineered Carbons, S.A. (OEC - Free Report) has an Earnings ESP of +3.85% and sports a Zacks Rank #2.
The Chemours Company (CC - Free Report) has an Earnings ESP of +2.38% and carries a Zacks Rank #3.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Image: Bigstock
Arconic (ARNC) Q2 Earnings Preview: What's in the Cards?
Arconic Inc. is slated to release its second-quarter 2018 results before the bell on Jul 31.
Arconic’s adjusted earnings of 34 cents per share for the first quarter of 2018 topped the Zacks Consensus Estimate of 32 cents, translating into a 6.3% positive surprise.
Revenues rose around 8% year over year to $3,445 million in the quarter, also beating Zacks Consensus Estimate of $3,329.6 million.
Arconic beat estimates in three of the trailing four quarters while missed on the other occasion. In this timeframe, it delivered an average positive surprise of 11.6%.
Arconic has underperformed the industry it belongs to over a year. The company's shares have lost around 14.9% over this period, compared with roughly 4.2% growth recorded by the industry.
Let’s see how things are shaping up for this announcement.
Factors at Play
Arconic, in April, provided its updated full-year 2018 guidance. The company raised its revenues expectations for 2018 to the range of $13.7-$14 billion from $13.4-$13.7 billion projected earlier. However, it lowered adjusted earnings outlook to the range of $1.17-$1.27 per share from $1.45-$1.55. The company also cut free cash flow guidance to around $250 million from its prior view of roughly $500 million.
The Zacks Consensus Estimate for revenues for Arconic for the second quarter stands at $3,475 million, reflecting an expected year over year growth of 6.6%.
Arconic is focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line. The company gained from net cost saving in the last reported quarter and is expected to continue to benefit from its cost actions in the June quarter.
Arconic is also seeing strong momentum in automotive, driven by the transition of the auto industry to lightweighting. Moreover, Arconic is witnessing 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. The momentum in aerospace is expected to continue in the second quarter.
However, Arconic is exposed to 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. Aluminum prices rose 20% in the first quarter and hurt operating margin by $37 million. Prices have increased sharply in the wake of aluminum tariffs. The company expects to face an unfavorable impact of $45-$55 million from elevated aluminum prices in the second quarter.
Arconic is also seeing weak sales in industrial gas turbine market due to soft market conditions. The market was down 7% in 2017 and the company expects at least 40% decline in 2018.
Arconic Inc. Price and EPS Surprise
Arconic Inc. price-eps-surprise | 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 29 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.
Stocks to Consider
Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
Domtar Corporation has an Earnings ESP of +1.70% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Orion Engineered Carbons, S.A. (OEC - Free Report) has an Earnings ESP of +3.85% and sports a Zacks Rank #2.
The Chemours Company (CC - Free Report) has an Earnings ESP of +2.38% and carries a Zacks Rank #3.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>