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What Awaits Century Aluminum (CENX) in Q1 Earnings?

Century Aluminum Co. CENX is scheduled to report first-quarter 2016 results after the closing bell on Apr 28. In the last quarter, this aluminum company had delivered a positive earnings surprise of 1.85%. Let’s see how things are shaping up for this announcement.

Factors to Consider

Century Aluminum, in its last earnings call, said that demand in the aluminum industry has remained reasonably stable outside China. While demand growth in China continues to weaken, supply expansion in the country’s aluminum industry continues, backed by government intervention and manipulation (including illegal government subsidies). Unfair subsidization of additional capacity expansion by the Chinese government has caused severe damage to global markets.

Century Aluminum is implementing a number of actions to reduce costs and preserve cash amid a weak pricing environment. The company expects to achieve annualized savings of $40–$65 million through these measures that include operating expense cuts and headcount reduction.

Century Aluminum is also expected to benefit from acquisitions (especially Mt. Holly) and value-added investment projects. The key regions for the company – the U.S. and China are witnessing good growth in aluminum requirements for the automotive and aerospace industry. This trend is expected to continue.

Moreover, Century Aluminum has low financial leverage with no near-term debt maturities. This, coupled with the company’s cost management actions, is expected to help it remain strong amid a difficult pricing environment.

However, Century Aluminum is faced with a weak pricing environment. London Metal Exchange (LME) aluminum prices still remain under pressure due to supply glut, exacerbated by higher exports of aluminum by China (the world’s biggest producer) amid weakening demand at home. Lower LME prices affected the company’s profits in the last reported quarter and are expected to remain a headwind in the March quarter.

Earnings Whispers

Our proven model does not conclusively show that Century Aluminum is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Century Aluminum is currently 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate both stand at a loss of 34 cents.

Zacks Rank: Century Aluminum sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Agnico Eagle Mines Limited AEM has an Earnings ESP of +50% and a Zacks Rank #3 (Hold).

Albemarle Corporation ALB has an Earnings ESP of +1.18% and a Zacks Rank #3.

Ashland Inc. ASH has an Earnings ESP of +1.74% and a Zacks Rank #3.

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ASHLAND INC (ASH): Free Stock Analysis Report
ALBEMARLE CORP (ALB): Free Stock Analysis Report
AGNICO EAGLE (AEM): Free Stock Analysis Report
CENTURY ALUM CO (CENX): Free Stock Analysis Report
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