Goldman Sachs Group, Inc. (NYSE:GS) released a report on Alcoa Inc (NYSE:AA) in which it lowered down the EPS estimates for the first quarter 2013. The Earning per share estimate was lowered from $0.09 per share to $0.07 per share. Along with the EPS the forward EPS estimates were also lowered on account of cost and margin expectations, which the report feels were not strict previously.
Alcoa Inc (NYSE:AA) has maintained its earnings by cutting costs but still there are chances that it will be not that easy in the future to save on cost, says the report. Goldman Sachs Group, Inc. (NYSE:GS) estimated that EPS in 2013/2014 would be in the range of $0.35/$0.65/$0.85 from $0.50/$0.95/$1.15. Alcoa was given a ‘neutral’ rating by Goldman Sachs.
The margins, which were estimated previously, were very flexible as balanced growth was expected in the aluminium prices through 2015. The midstream and downstream business of Alcoa is expected to get better, but the price of Aluminium in the upper stream category will exert sufficient pressure. This pressure of Aluminium price will make difficult for the company to cut costs.
In the first quarter of 2013, investors will be interested in knowing the cash flow generation of Alcoa Inc (NYSE:AA), which according to Goldman Sachs Group, Inc. (NYSE:GS) will be around $2.6 billion of cash outlays in 2013. The report further states that Alcoa Inc (NYSE:AA) will probably have a negative Free Cash Flow of more than $900 million in 2013. There is no liquidity crunch expected for Alcoa in the near term, but the prices of aluminium will remain low in the long term. Alcoa Inc (NYSE:AA) will have to look for strategic alternatives, which include divesting more assets to generate cash.
The price of Aluminium in the first quarter of 2013 was flat according to the report. Alcoa Inc (NYSE:AA) as a result of flat Aluminium price will have flat earnings in the first quarter. The report states that there are strong chances that the upstream business will remain weak in the first quarter.
The Alcoa Alumina segment will also show a similar performance due to the less seasonal shipments. The adjusted EBITDA is expected at $150 million in the first Quarter of 2013 compared to the fourth quarter earnings of $145 million. In the Primary Aluminium segment, also the earnings are estimated to be flat with adjusted EBITDA around $198 million compared to the fourth quarter earnings of $195 million. For the Global rolled Products Goldman Sachs Group, Inc. (NYSE:GS) is expecting adjusted EBITDA to go up to $198 million with an increase in margins to 11.8 percent from 9.0 percent. In Engineered Products and Solutions segment, adjusted EBITDA is estimated to be $224 million as against 4Q12-adjusted EBITDA of $239 million.
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