Shares of aluminum producers Century Aluminum Co. (NASDAQ:CENX) and Alcoa Corp. (NYSE:AA) tumbled on Thursday, falling more than 10% and 13%, respectively, by 2:30 p.m. EDT. Driving the decline was Alcoa's second-quarter earnings report, which detailed a "significant" impact from aluminum tariffs instituted this year.
On the one hand, Alcoa's second-quarter results were solid. The company reported $3.6 billion in revenue, up 25% year over year and $140 million ahead of expectations. Meanwhile, earnings came in at $1.52 per share, which was $0.18 per share ahead of the consensus estimate. Driving those results were higher prices and a stronger U.S. dollar.
However, while those results were good, the future isn't looking as bright as Alcoa hoped. The aluminum company cut its full-year forecast for adjusted EBITDA to a range of $3 billion to $3.2 billion, which is down from its initial guidance of between $3.5 billion and $3.7 billion. Driving the weaker outlook were current market prices, tariffs on imported aluminum, and higher energy costs.
While the U.S. imposed tariffs to help domestic aluminum producers like Alcoa and Century Aluminum, they're hurting as much as helping. Alcoa CEO Roy Harvey says that's because "everyone assumed, as did we, that there would be an exception in place for Canadian production ... that has turned out not to be the case and that is a pretty significant impact for us," since his company makes 28% of its aluminum in Canada. Furthermore, Harvey noted his growing concern that some industrial customers might move their operations outside the U.S. to get away from the tariff impact.
The Trump administration levied tariffs on imported aluminum and steel from several countries, to protect U.S. manufacturers from foreign nations that were dumping those products at below-market prices. However, the tariffs had their share of unintended consequences. That led Harvey to conclude that "unfortunately, tariffs on U.S. aluminum imports do not remedy [the] underlying structural issues of the U.S. and global aluminum industries." Given that admission, aluminum stocks could have more downside ahead, if the tariffs continue causing more problems than they solve.