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Alcoa results disappoint market but there's upside ahead in split: Analyst

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Assessing U.S. market bellweather Alcoa's results may depend on who you ask.

The aluminium giant's last quarterly results before its split into two on November 1 disappointed markets, but an analyst said the new structure should bode well for the company that has been hit by the prolonged slump in commodity prices.

On Tuesday, New York-based Alcoa reported a third-quarter net profit of $166 million, or 33 cents per share, up from $44 million, or 6 cents a year earlier. Excluding special items, Alcoa earned 32 cents a share. Analysts polled by Reuters, on average, had expected earnings per share of 35 cents. Revenue fell to $5.2 billion from $5.6 billion a year earlier and was below estimates of $5.3 billion.

Quarterly revenue fell in the divisions making products for the automotive and aerospace industries, in part due to delays with new jet aircraft engines and pricing pressure, Alcoa said.

Alcoa expects global automotive production will rise between 1 percent and 4 percent in 2016 while growth in aircraft deliveries is expected between 0 to 3 percent in 2016.

Even though the outlook for the aerospace sector was less than enthusiastic, the longer-term outlook was brighter, said Andrew Lane, senior equity analyst at Morningstar.

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"Over a much longer time horizon, we really like aerospace and market exposure that Alcoa has now. Management spent over $4.5 billion since last 2014 increasing their exposure to aerospace and many of the materials they are producing and shipping to aerospace customers aren't even aluminium products. They are titanium and specialty alloy products that should enjoy secular growth," he said.

On November 1, the 128-year-old company will split into two entities, one retaining the Alcoa name that will focus on the traditional smelting business. The other business called Arconic will specialize in higher-end specialty aluminum and titanium alloys for the automotive, aerospace and construction industries.

The upstream commodity facing business will continue to face challenges, said Lane.

"We are hard pressed to believe that we'll see significant profitable growth for either the alumina or aluminium segments over time. In fact, we expect margins to contract a bit from current levels for both," he said.

Alcoa was unlikely to make any new moves ahead of the split but will likely be more acquisitive over time as it moves from its traditional aluminium business to higher value metals and specialty alloys that should enjoy faster growth and deliver higher margins for the company over time, he added.

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