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Arconic (ARNC) Q1 Earnings: What's in Store for the Stock?

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Arconic Inc. (ARNC - Free Report) is slated to release its first-quarter 2017 results after the close on Apr 25.

Arconic, formerly known as Alcoa Inc., is a global leader in multi-material, precision engineered products and solutions for a variety of industries. The separation of Alcoa Inc. into two independent, publicly traded companies – Arconic Inc. and Alcoa Corporation – was completed and became effective on Nov 1, 2016. Alcoa Inc. changed its name to Arconic Inc. on Oct 31, 2016 in connection with its business separation.

Arconic’s adjusted earnings of 12 cents per share for the last reported quarter, beat the Zacks Consensus Estimate by a penny. Revenues for the quarter were $2,967 million, also coming ahead of the Zacks Consensus Estimate of $2,925 million.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Arconic, in its fourth-quarter 2016 call, said that it will remain focused on cost cutting and improving margin and return on net assets in 2017. For first-quarter 2017, the company sees revenues in the band of $2.8 billion to $3 billion and adjusted EBITDA of $420 million to $450 million.

Arconic has outperformed the Zacks categorized Mining-Non Ferrous industry year to date, aided by strong demand for its products across aerospace and automotive markets and its efforts to improve cost structure through company-wide productivity actions. The company’s shares have gained around 40.9% over this period, compared with roughly 9.1% gain recorded by the industry.

Arconic is focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line in the first quarter. The company delivered $710 million in gross productivity savings in 2016. Arconic is targeting gross productivity of 4.5% to 5.5% of revenues and net savings of around 2% of revenues in 2017.

Arconic holds strong positions in attractive markets. The company is seeing healthy demand trends in the aerospace market (accounts for roughly 40% of the company’s total revenues). It holds the number one market position in aluminum sheet and plate for the aerospace industry globally. Arconic is actively pursuing its aerospace expansion strategy.

Arconic is also well placed to capture the growing demand for aluminum sheet stemming from the transition of the North American auto industry to lightweighting. The company leverages its breakthrough Micromill technology that manufacture the most advanced aluminum sheet on the market.

Arconic recently said that it is selling its rolling mill in Fusina, Italy to Slim Aluminium. The move follows a detailed review process and is part of the company's Global Rolled Products (“GRP”) business's efforts to convert the business from a commodity producer to a high-margin aerospace and automotive supplier. The company expects to register restructuring-related charges representing the loss on sale of around $60 million (post tax) or 12 cents per share in the first quarter.

The company also recently announced that Klaus Kleinfeld has stepped down as Chairman and CEO of Arconic by mutual agreement with the company’s board amid intense pressure from hedge fund, Elliott Management. The move follows the findings of Arconic’s board that, without authorization by the board, Kleinfeld sent a letter directly to a senior officer of Elliott Management which the board decided was in poor judgment. Arconic has appointed David P. Hess, an incumbent board member, as Interim CEO.

Elliott Management, which now owns a 13.2% interest in Arconic, had been actively seeking removal of Kleinfeld since January and has also suggested ways to improve the company’s performance and its share price. The hedge fund has also nominated four new directors to the company’s board to be voted at its May 16 annual meeting.

Arconic Inc. Price and EPS Surprise


Arconic Inc. Price and EPS Surprise | Arconic Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Arconic is likely to beat estimates this quarter. This 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. This 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 25 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 #2, which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks That Warrant a Look

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company (CC - Free Report) has an Earnings ESP of +4.08% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle Corporation (ALB - Free Report) has an Earnings ESP of +2.11% and carries a Zacks Rank #2.

Franco-Nevada Corporation (FNV - Free Report) has an Earnings ESP of +15.00% and carries a Zacks Rank #3.

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