Those who are familiar with AA are likely aware that the company's track record against consensus estimates is rather shaky. In fact, over the past five quarters, AA has missed on both the top or bottom line on three occasions. Nevertheless, the stock has enjoyed a very nice run over the past two years, up an astounding 240%. Again, this is thanks to the improving economy, particularly in the construction and global industrial markets.
Taking a closer look at its Q4 results, AA generated EPS of $1.04, missing the Capital IQ consensus by $0.19. This follows last quarter's $0.05 bottom line miss. The good news, though, is that Q4 EPS improved dramatically from the $0.14 it generated in the year ago period. EPS was also up an impressive 44% on a sequential basis.
Also, Adjusted EBITDA was up sharply by 114% to $2.35 billion (a record as a public company) and cash flow from operations improved to a positive $1.2 billion from a negative ($506) million a year ago. These improvements in profitability and cash flow were primarily due to continued strength in alumina and aluminum pricing, as well as ongoing progress in reducing operating and production complexities, driving higher return on assets.
On the topline revenue was up 25% year/year and 7% sequentially to $3.17 billion, missing the $3.28 billion expectation. Again, the growth here was attributable to pricing momentum and favorable markets.
In its earnings press release, AA also provided an outlook for FY18, forecasting Adjusted EBITDA of $2.6-$2.8 billion, representing year/year growth of 15% at the mid-point. Further, AA is projecting global aluminum demand growth of 4.25-5.25%, which, at the mid-point, would be a down-tick from FY17's final global demand rate of 5.25%. This estimate, combined with the EPS and revenue miss, is a likely catalyst to the stock's dip lower this morning.
To conclude, AA's quarterly results do illustrate that demand is healthy and the business climate in general is favorable. Compared to a year ago, most of the company's key financial metrics showed vast improvement and strong growth. However, it continues to struggle versus expectations, demonstrating that management and the analyst community are not on the same page. This uncertainty regarding how its quarterly results will shake out presents a risk to traders and investors, as we are seeing this morning with the stock trading sharply lower.