Nonetheless, the future looks bright with massive Dreamliner preorders reported by The Boeing Company (NYSE:BA), which presumably means increased demand for aluminum. However, the deliveries of the planes are expected to take place in batches, which means the real growth rates in demand over the short-term are likely to be minimal.
Competition
Aluminum Corp. of China Limited (ADR) (NYSE:ACH) engages in the manufacture and distribution of alumina, primary aluminum, and aluminum fabrication products in the People’s Republic of China, as well as internationally. Just like Alcoa, Aluminum Corp. of China Limited (ADR) (NYSE:ACH)’s business depends on aluminum prices.
More than 50% of the $4.53 billion cap company’s revenue comes from primary aluminum sales, which puts it at a much higher risk than Alcoa. Other products related to aluminum account for about 45%.
In the most recent quarter, the company’s revenues grew by 2%. The company is still unprofitable as it struggled to shake off the effects of declining aluminum prices. Its operating loss stands at 3%. However, with China accounting for about 46% of global aluminum demand, the company stands a chance to ride on the country’s massive population and economic growth rates.
On the other hand, Century Aluminum Co (NASDAQ:CENX)’s revenues from the most recent quarter fell by about 1.5%. Just like its rivals, it continues its loss-making streak. Nearly the whole of Century Aluminum Co (NASDAQ:CENX)’s revenue comes from the sale of molten primary aluminum products.
The company also engages in the production of carbon anodes, which contributes insignificantly to the overall revenue. The decline in aluminum prices has affected the company’s margin, standing at just 3% compared to Alcoa’s 15%. Its operating loss of 1% means that the company is unable to sustain its operations without external funding.
The Chicago, IL-based aluminum production company’s stock has large insider ownership, standing at 42%. Its most recent quarter revenues declined by 2%–a statistic similar to the one reported by Alcoa.
The bottom line
While Alcoa remains impressive compared to its competition, the macroeconomic threat of declining aluminum prices spares no one. Nonetheless, if the company continues cutting down its level of exposure from the current 36%, then this threat could come down to tolerable levels.
Additionally, the Alcoa can also rely on a probable increase in demand following the current trends in the aerospace industry. These metrics give a more reliable assessment of the company’s future than betting on “positive” results, which came about just because it beat analyst estimates.
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Why You Should Not Bet On This Stock’s Q2 Earnings originally appeared on Fool.com is written by Nicholas Kitonyi.
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