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Why Shares of Alcoa Are Soaring Today

By Lou Whiteman - Oct 17, 2019 at 10:43AM

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Investors are pleased with the company's restructuring plan.

What happened

Shares of Alcoa (AA) climbed more than 10% on Thursday morning following the aluminum giant's third-quarter earnings report. Alcoa came in short of earnings and revenue expectations, but investors were more focused on the company's plans to streamline costs. The stock is up 8.5% as of 10:39 a.m. EDT.

So what

After markets closed on Wednesday, Alcoa reported a third-quarter loss of $0.44 per share on revenue of $2.57 billion, missing analyst predictions for a $0.33-per-share loss on revenue of $2.59 billion. The $0.44-per-share loss excludes $139 million in special items, most of which were tied to the divestiture of two facilities in Spain.

CEO Roy Harvey in a statement lauded "strong operational performance" during the period, while admitting "market and pricing challenges persisted through the quarter."

View from the floor of an Alcoa smelter.

An Alcoa smelter in action. Image source: Alcoa.

Alcoa also provided details of its previously announced plan to cut costs in response to weak commodity prices. The company said that over the next 12 to 18 months it intends to sell between $500 million and $1 billion of assets deemed non-core, saying it has placed about 1.5 million metric tons of smelting capacity and 4 million metric tons of alumina refining capacity under review.

The company is also taking steps to reduce its carbon footprint, pledging that post-transformation it will be the lowest emitter of carbon dioxide among global aluminum makers. Alcoa expects up to 85% of its smelting portfolio will eventually be powered by renewable energy.

Now what

In the years since its 2016 spinoff of Arconic, Alcoa has been tied to the commodity cycle. A combination of an apparent global slowdown, fears of a U.S. recession, and the impact of trade wars has put pressure on the company's results.

The long-term bull case for Alcoa is built around expected Chinese production cuts and hopes that an eventual U.S.-China trade deal will spark an increase in demand. Alcoa shares are higher today on investor hope that the restructuring plan will leave the company well-positioned to take advantage when demand and commodity prices do inevitably spike.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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