Aluminum products maker Arconic slashed its 2018 forecasts for profit and free cash flow as it expects prices of the metal to remain high this year due to sanctions on Russian supplies and a 10 percent duty on aluminum imports.
Shares of the company, which makes aluminum products used in airplanes and trucks, fell 17 percent as the company also said high prices squeezed margins across the company’s businesses in the first quarter.
Aluminum prices have been sharply higher in the first quarter of the year compared with a year earlier, also due to falling output in top producer China – where the government has shut down some aluminum capacity.
New York-based Arconic said it now expects full-year profit of $1.17 to $1.27 per share, down from its previous forecast of $1.45 to $1.55, and halved its free cash flow estimate to $250 million.
The updated forecast assumes current aluminum prices will hold at these elevated levels, Chief Financial Officer Kenneth Giacobbe said on a post-earnings call with analysts.
Seaport Global Securities analyst Josh Sullivan said for the company’s upcoming long-term contracts – given its outlook on prices – it will have try to pass on price increases to customers.
President Donald Trump this month imposed sanctions on Rusal, Russia‘s biggest aluminum producer, and some other companies, in response to Moscow‘s alleged meddling in the 2016 U.S. election.
Rusal has been considering a range of measures to try to convince Washington to lift the sanctions, which have led customers to stop buying its aluminum.
Arconic said operating income, excluding special items, fell 11.5 percent to $345 million.
However, Arconic raised its revenue forecast to $13.7 billion to $14.0 billion for the year, from its previous forecast of $13.4 billion to $13.7 billion.
Sales rose 7.9 percent to $3.45 billion in the first quarter from a year earlier, slightly higher than the average analyst estimate of $3.34 billion, with aluminum prices accounting for $109 million or about 40 percent of the increase.
Excluding one-time items, Arconic earned 34 cents per share, also edging past analysts’ average estimate of 33 cents, according to Thomson Reuters.
