Alcoa (AA) Surprises on Q2 Earnings Beat

Minutes after the closing bell today, aluminum giant Alcoa Inc. AA posted a big earnings beat for its fiscal Q2. Earnings of 15 cents per share on quarterly sales of $5.3 billion, easily topped the 9 cents per share and $5251 million in revenues, respectively.

The 66% earnings beat marks the second in a row for U.S.'s top aluminum producer, but the company missed revenue estimates in Q1. Analysts had been slightly biased to the downside in estimate revisions for the second quarter in a row, as well, although the Zacks ESP was looking for a 2-cent beat for Alcoa in Q2.

Even better, perhaps, than its impressive Q2 beat is the 6% growth guidance for the second half of 2016, with double-digit growth beyond. Investors who have been patient on the raw materials side of Alcoa gaining traction the past few quarters are being rewarded today -- with aluminum pricing reportedly up 22% in Q2, the upstream (legacy) side of the business is finally seeing some solid numbers.

The other side of Alcoa, consisting of Engineered Parts and rolled aluminum products, is on track to be spun off into its own company late this year under the name Arconic. This side of the business gave Alcoa a real shot in the arm back when the company bought airplane parts maker Firth Rixson two years ago. It was the near-immediate success of this side of the business, in fact, that has led to the notion of the company splitting into two in the first place.

Now with the legacy raw materials side pulling its weight and solid growth in Alcoa's forecast, you might say the timing appears very good. Especially if global economic growth can get on sounder footing, Alcoa should be a beneficiary of this. Then again, it looks as if Wall Street is already pricing in this momentum -- the stock is up 3.75% in after-market trading following a 3% jump in regular Monday trading.

Before the Q2 earnings announcement, Alcoa was trading up nearly 27% over the last 6 months. It will be interesting to see how this and the new split-off stock will fare by this time next year.

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