Goldman Sachs cut its investment recommendation on Alcoa (AA) to underperform from in-line.
Analyst Alberto Arias said the company's 27 cents to 31 cents third quarter earnings per share guidance is below his consensus 44 cents estimate. He says the news reflects the company's inability to offset cost pressures with cost cutting, which was a key target the management set early in 2005. Arias says that large amounts of idle aluminum smelting capacity in China, rising global alumina production, and higher-than-expected aluminum production in China are eroding supply-demand fundamentals in the medium term. He expects cost pressures to continue in an environment of declining aluminum prices. He cut his $1.65 2005 earnings per share estimate to $1.42, and his $1.78 2006 estimate to $1.60.