Alcoa to post modest Q3 profit, eyes on forecast

Alcoa Inc （AA.N） is likely to post a modest third-quarter profit, but Wall Street will key in on the aluminum giant's forecast to see if surging metal prices will send its earnings soaring in the year's final quarter.

Analysts are forecasting third-quarter earnings of 5 cents a share, according to Thomson Reuters I/B/E/S, up 1 cent from a year earlier. The company reports after the market close on Thursday.

It is the first of the Dow Jones industrial average .DJI components to issue its quarterly figures.

Aluminum prices on the London Metal Exchange have risen by more than 15 percent since late August after a modest dip in average prices during the third quarter.

The weak U.S. dollar against the Australian dollar and Brazilian real is expected to be a drag on earnings because it raises Alcoa's raw material costs.

While Alcoa shares have bounced higher, they have not kept up with the rising metal price over the past six months.

Currently, analysts forecast fourth-quarter earnings of 14 cents per share.

But China's move to restrict supplies of cheap electricity to less efficient aluminum producers has reduced output and tightened supplies. That could be a boon for Alcoa and others in the coming months.

"There's been a lot of talk about what's going in China," said analyst Bridget Freas at Morningstar. "That's a big benefit for the other global aluminum players."

Not everyone is convinced China will continue to curtail its output if the aluminum price stays strong.

"It is possible that if aluminum prices trend meaningfully higher, a supply response may emerge, capping how high prices may trend," Dahlman Rose & Co analyst Anthony Rizzuto wrote in a note to investors on Wednesday.

CUTTING COSTS

Alcoa CEO Klaus Kleinfeld has instituted sweeping costs for the company in a bid to improve efficiency and the company has targeted overhead cost reductions of $500 million.

Still, the typical seasonal slowdown in flat rolled product sales will also weigh on the earnings, as will the decline in the U.S. dollar, which fell more than 8 percent during the third quarter against a basket of major currencies .DXY.

Increased sales of alumina, a building block of aluminum, are likely to offset some of that weakness. The company previously expected to increase its alumina production by 150,000 tonnes in the third quarter.

Alcoa shares have jumped more than 20 percent from their recent August low, but are still down more than 23 percent year-to-date