What happened
Shares of aluminum giant Alcoa (AA 1.39%) plunged this morning and were trading down as much as 13.1% as of 10:50 a.m. ET. Given the way Alcoa stock rose in recent weeks, today's knee-jerk reaction is a surprise as the company just delivered a strong set of first-quarter numbers. It simply failed to meet the market's expectations, and multiple analyst downgrades have only helped fueled the negative sentiment.
So what
Alcoa released its first-quarter earnings report yesterday evening after market close. The company's net income more than doubled year over year to $469 million on 14.7% revenue growth.
So what's not to like here? The market expected Alcoa to report even higher revenue given the recent surge in aluminum prices in the wake of the Russia-Ukraine conflict.
Image source: Getty Images.
To be sure, Alcoa realized 14% higher average prices for aluminum sequentially, but its production volumes fell short of estimates. Alcoa's aluminum production was down 10% sequentially as it cut back production at its San Ciprián smelter in Spain. That was part of an agreement with workers who went on strike after the company started weighing options to sell or close the facility in the wake of exorbitant energy prices that made it unprofitable.
Keeping the market's expectations aside, the first quarter was in fact a record quarter for Alcoa as expected in terms of profits, with its earnings before interest, tax, depreciation, and amortization (EBITDA) even surpassing $1 billion for the first time in the company's history.
Now what
Today's plunge in Alcoa shares is more of a forward-looking reaction from investors and analysts alike.
On March 2, Alcoa said it'll stop buying raw material from and selling finished products to Russia. That also includes bauxite sales (Alcoa is one of the world's largest bauxite miners). As a result, the company has lowered its bauxite shipment projection for 2022 by 2 million metric tons. This seems to have hit a nerve with the market today even though Alcoa still expects higher aluminum and alumina prices for the second quarter.
Some even fear the aluminum bull run might have run its course. Citi analyst Alexander Hacking downgraded the stock to neutral from buy while keeping its price target of $84 a share, according to TheFly.com. Hacking believes Alcoa is fairly valued given its recent rally. Analysts at BMO Capital and B. Riley also cut their ratings and price targets on the aluminum stock today.
That's a lot of negativity for one day, which is why Alcoa shares are crashing so hard.
