Shares of Alcoa (NYSE:AA) traded down more than 10% on Thursday after the aluminum producer reported fourth-quarter results that were worse than expected. Alcoa said it expects a worldwide surplus in aluminum this year, which it says will weigh on results despite the company's efforts to streamline.
After markets closed Wednesday, Alcoa reported a fourth-quarter loss of $0.31 per share on revenue of $2.44 billion, falling well short of analyst expectations for a loss of $0.22 per share on revenue of $2.49 billion. Sales were down 26% year over year, in part because the company spent 2019 divesting and shuttering assets that it deemed noncompetitive.
CEO Roy Harvey said that while market conditions remain challenging, Alcoa is trying to focus on its strengths to weather the storm.
"While the market in alumina and aluminum challenged us, we maintained a strong cash balance of nearly $900 million and drove operational stability," Harvey said. "Also, our low-cost, top-tier bauxite and alumina segments both set new annual production records based on our current portfolio."
Aluminum prices have been hit by fears of a slowdown in China, coupled with trade wars that have added uncertainty to the global economy. Alcoa said it expects that global aluminum supply will exceed demand by as much as 1 million metric tons in 2020, with growing Chinese production adding to an already difficult operating environment.
Alcoa has a long-term plan to address these difficult market dynamics, including selling upward of $1 billion worth of noncore assets and shifting away from aluminum production and toward higher-margin businesses. That plan might provide reason for hope, but as these recent results and guidance suggest, it is going to take a significant amount of time for a recovery to take hold.
In the meantime, there is a lot of uncertainty about how 2020 will play out. The U.S.-China trade deal could lead to easing tensions and spark new demand for aluminum, but there remains the risk that the U.S. stumbles into a recession or that demand falters for some other reason.
Following Thursday's sell-off, Alcoa now trades at just 0.3 times sales. But until there is a clear path to an earnings recovery, there isn't much to suggest that investors are being offered a bargain.