Alcoa Inc (AA.N) may come up just short of already muted forecasts for the third quarter when it kicks off the U.S. reporting season next week, weighed down by weak aluminum prices.
The company, typically the first of the S&P 500 companies to report quarterly earnings, is set to announce its results on October 8 after U.S. equity markets close.
Its third-quarter profit could miss Wall Street estimates by 6.7 percent, and fourth-quarter earnings could miss by 31 percent, according to Thomson Reuters StarMine, which accounts for analysts' past performance in forecasting results.
It will be Alcoa's first report since being dropped from the Dow Jones industrial average.
Deutsche Bank cut the company's stock to "sell" from "hold" on Wednesday, saying lower prices do not bode well for its primary metals business.
While a weaker Australian dollar and Brazilian real could offset lower aluminum prices and benefit third-quarter results, the fourth quarter will not get much help from foreign exchange movements, the Deutsche Bank analysts, led by Jorge Beristain, said in a note to clients.
Analysts on average have reduced their earnings estimates for the third quarter by 31 percent in the last three months. They are now forecasting adjusted earnings of 6 cents a share, according to Thomson Reuters I/B/E/S.
Aluminum prices have nearly halved since their peak of $3,380 per ton in July 2008. Benchmark three-month London Metal Exchange aluminum dropped nearly 14 percent in the first six months of 2013, hurt in part by excess inventories.
And proposed rule changes at metals warehouses could erode the profitability of financing deals that have locked up metals in London Metal Exchange depots, spilling even more metal into the over-supplied market.
The high premiums paid to obtain physical metal, which have been a lifeline for aluminum producers, led to a string of U.S. lawsuits and a London Metal Exchange proposal to overhaul its delivery system from next April. Premiums have already fallen back from this year's record highs.
In September, BNP Paribas lowered its 2014 aluminum price forecast by $135 to $1,865 per ton.
Alcoa posted a net loss in the second quarter, hurt by restructuring costs related to plant closures, but pulled off a larger-than-expected adjusted profit thanks to a strong performance from its high-margin engineered products business.
The company said in May that it would review 460,000 tons, or about 11 percent, of its smelting capacity given the tough market. Later that month it announced closures at its Baie-Comeau smelter in Quebec. In August it curtailed production in Brazil and permanently shut down part of its operations in New York.
But operations are ramping up at Ma'aden, the $10.8 billion, 740,000 ton per year smelter run by a joint venture between Alcoa and Saudi Arabian Mining Co 1211.SE.
Alcoa's stock has slipped 6 percent this year but still trades at 27 times forward 12-month earnings - a big premium to the sector median of 7.21. The shares were down 1.8 percent at $8.02 by mid-afternoon on Wednesday.
Deutsche Bank cut its price target on Alcoa's shares by 39 percent to $5.50.
(Reporting by Sayantani Ghosh and Saumyadeb Chakrabarty in Bangalore, Allison Martell in Toronto and Nicole Mordant in Vancouver; Editing by Don Sebastian and Tim Dobbyn)