Latest / Bloomberg Intelligence / Macquarie's Young on Impact of Split to Alcoa Earnings (Audio)

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Macquarie's Young on Impact of Split to Alcoa Earnings (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day. If Bloomberg
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  Speaker 1: This is a Bloomberg business flash for all Bloomberg World headquarters.
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  Speaker 1: I'm Charlie Pellot, Stocks rallying SMP five hundred index trading
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  Speaker 1: at our record. We do hear from Alcola after the
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  Speaker 1: closing Belle Alca shares up now by two point three percent.
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  Speaker 1: Here's where aquities stand. We've got the SMP five hundred
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  Speaker 1: index up ten forty a gain of five tenths of
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  Speaker 1: one percent. Nes stack up thirty six a gain of
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  Speaker 1: seven tenths of one percent. Down, Industrials up one hundred
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  Speaker 1: eight points, a gain of six tenths of one percent.
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  Speaker 1: Ten year down nineteen thirty seconds, with the yield of
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  Speaker 1: one point four two percent. Gold down a dollar seventy
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  Speaker 1: thirteen fifty six the ounce, a drop there of point
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  Speaker 1: one percent. And crude oil West Texas Intermediate now at
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  Speaker 1: forty five oh two down thirty eight cents, a drop
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  Speaker 1: of nine tenths of one percent. I'm Charlie Pellots done.
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  Speaker 1: That's a Bloomberg business flash. You're listening to taking stock
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  Speaker 1: with Kathleen Hayes and Pim Fox on Bloomberg Radio. Well,
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  Speaker 1: Alcohol reporting today after the bell and officially kicking off
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  Speaker 1: earning season. We want to get right to what is expected,
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  Speaker 1: how this company is faring, and certainly it's a spinoff,
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  Speaker 1: it's becoming two companies. Where does that stand down does
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  Speaker 1: that mean for investors? Anthony Young joins us now Metals
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  Speaker 1: and Mining analysts for mcquarie. Anthony, welcome to the show.
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  Speaker 1: Thanks for having me, guys, so set the table for us.
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  Speaker 1: You're an analyst. You're waiting so closely to see or
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  Speaker 1: watching so closely to see what happens with Alcohol. What's
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  Speaker 1: at the top of your list? Well, I mean this
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  Speaker 1: quarter is somewhat unique given the split at the company
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  Speaker 1: is going to be occurring at the company, So the
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  Speaker 1: split will pay a major factor in this earnings release.
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  Speaker 1: UM investors looking for further details on that, but then
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  Speaker 1: also fundamentally UM trying to figure out, you know, what's
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  Speaker 1: going on with the aluminium business and what's going on
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  Speaker 1: with the downstream or their industrials business, and looking at
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  Speaker 1: the UM drivers that are impacting that and the profitability
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  Speaker 1: if they're able to generate in those two companies once
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  Speaker 1: they split. Anthony, tell us the details about these two companies,
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  Speaker 1: what are they going to do and is this also
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  Speaker 1: beneficial for investors? Well, I think it will be beneficial
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  Speaker 1: for investors. You know. Uh, you do have this somewhat
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  Speaker 1: of a conglomerate with Alcoa, and you have five divisions UM.
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  Speaker 1: Two divisions on the upstream one that produces aluminum and alumina,
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  Speaker 1: and then on the downstream UM you have the world
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  Speaker 1: products and engineered um products and transportation and construction systems UM.
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  Speaker 1: So to split these into two different companies, UM, I
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  Speaker 1: think it will allow management to focus on cost cutting. UM.
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  Speaker 1: It will also allow investors to have a better feel
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  Speaker 1: on how the how each of these entities should be
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  Speaker 1: valued separately. This is a very large picture question, but
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  Speaker 1: I guess it's the kind of question where people are
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  Speaker 1: gonna be waiting to here on the call from Alcoa.
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  Speaker 1: A lot going on in the world and Brexit, for example,
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  Speaker 1: some have contended that is going to cause a broader
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  Speaker 1: slow down in Europe, which accounted for about of alcohol
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  Speaker 1: is fisvenue. Yes, you know, I think that the Brexit
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  Speaker 1: will be something that almost every company will probably address
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  Speaker 1: as we go through earning season. And I'm sure a
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  Speaker 1: lot of companies UM or some companies that miss earnings
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  Speaker 1: very well may point to still down in business activity
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  Speaker 1: UM surrounding that. But I think that when you look
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  Speaker 1: at the commodity space right now, UM, a low interest
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  Speaker 1: rate environment UM should be UM, you know, supportive to commodities. Also,
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  Speaker 1: I think here in the US specifically UM, you know,
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  Speaker 1: when you're looking at the p m I numbers and
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  Speaker 1: some of these other leading indicators, UM, there's a growing
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  Speaker 1: sense of the recovery UM really taking holds and possibly
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  Speaker 1: picking up a little bit here over the coming orders.
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  Speaker 1: What should lead to better demand particularly for some of
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  Speaker 1: the industrial components that alcohol provides two things like the
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  Speaker 1: aerospace and UM the power generation industries. Anthony, I know
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  Speaker 1: that we're looking for what earnings per share to come
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  Speaker 1: in for the second quarter of nine cents UH second
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  Speaker 1: quarter revenue estimates about five and a quarter billion. And
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  Speaker 1: one of as far as the split off goes, having
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  Speaker 1: two different types of businesses under one umbrella, does that
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  Speaker 1: create a kind of cushion? You know, when one part
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  Speaker 1: of the business does well, the other part might not,
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  Speaker 1: so that there's a balance. Why is splitting it up
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  Speaker 1: into two so much so much better for the for
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  Speaker 1: the corporation. Well, you do have some advantages I think
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  Speaker 1: with conglomerates, but I think when you have these two
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  Speaker 1: UM you know, they're seemingly related, but they're also complete
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  Speaker 1: distinct businesses UM, it should just allow for more of
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  Speaker 1: a focus. I think that UM basically, instead of having
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  Speaker 1: two companies or excuse me, instead of having one company
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  Speaker 1: that is in the process of restructuring and you know,
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  Speaker 1: management possibly focusing on one division or another UM and
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  Speaker 1: restructuring that over time, I think that with the two
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  Speaker 1: separate entities, you'll have two separate management teams that can
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  Speaker 1: focus on positioning each of their businesses UH and the
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  Speaker 1: best possible manner UM for where they should fit into
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  Speaker 1: the supply chain with respect to UM, lightweight metals and
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  Speaker 1: industrial components. So I think that they're Unfortunately for ALCOHOLAH,
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  Speaker 1: there's a lot of work to be done here, but
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  Speaker 1: I think that with two management teams that work can
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  Speaker 1: be done more quickly than it could be under just
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  Speaker 1: one roof. I think, can you give us an example
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  Speaker 1: of a company is similar to all coal or not
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  Speaker 1: who has done something like this where it failed or
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  Speaker 1: where it succeeded wildly, some some reason to give us
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  Speaker 1: why we should be doubtful this is going to work
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  Speaker 1: or confident that it will. Yeah, you know, I think
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  Speaker 1: that that is that's a tough question because you know,
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  Speaker 1: when you think about succeeding or failing UM, whether it
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  Speaker 1: be the stock price or the inherent value of the
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  Speaker 1: business or the cash generation. You know, it's sort of
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  Speaker 1: you have different metrics that you may look at. For example,
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  Speaker 1: UM b HP when they split into South thirty two
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  Speaker 1: UM and then the legacy b HP iron ore energy,
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  Speaker 1: UM copper and met coal businesses. You know that the
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  Speaker 1: South thirty two today just picked higher than the I
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  Speaker 1: p O price UM where it was historically, and that
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  Speaker 1: that equity, at least by the market, seems to be
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  Speaker 1: UM more attractive now than it had been in the past.
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  Speaker 1: So I guess from a stock perspective that one is
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  Speaker 1: now working. But you know, it was a very long
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  Speaker 1: time frame. It was underwater for twelve months here relative
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  Speaker 1: to UM the spin price, So I think that you know,
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  Speaker 1: it's not to say that UM Alcohol will split and
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  Speaker 1: both stocks will immediately trade higher UM going into that event,
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  Speaker 1: but I think that a split will again allow the
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  Speaker 1: management teams to focus on the fundamentals and over time, um,
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  Speaker 1: whether that's a quarter, six months, or two years down
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  Speaker 1: the road, it will be better for investors. Thank you
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  Speaker 1: very much for spending time with us. Anthony Young is
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  Speaker 1: medals and mining analysts for mcquarie, speaking about ALCA. They
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  Speaker 1: will be reporting earnings after the close of trading today.
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