WEBVTT - Macquarie's Young on Impact of Split to Alcoa Earnings (Audio)

0:00:02.279 --> 0:00:05.640
<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

0:00:05.720 --> 0:00:08.800
<v Speaker 1>dot com, the radio plus mobile app and on your radio.

0:00:09.080 --> 0:00:13.560
<v Speaker 1>This is a Bloomberg business flash for all Bloomberg World headquarters.

0:00:13.800 --> 0:00:17.680
<v Speaker 1>I'm Charlie Pellot, Stocks rallying SMP five hundred index trading

0:00:17.680 --> 0:00:20.840
<v Speaker 1>at our record. We do hear from Alcola after the

0:00:20.840 --> 0:00:24.959
<v Speaker 1>closing Belle Alca shares up now by two point three percent.

0:00:25.400 --> 0:00:28.360
<v Speaker 1>Here's where aquities stand. We've got the SMP five hundred

0:00:28.400 --> 0:00:31.440
<v Speaker 1>index up ten forty a gain of five tenths of

0:00:31.480 --> 0:00:34.320
<v Speaker 1>one percent. Nes stack up thirty six a gain of

0:00:34.440 --> 0:00:37.960
<v Speaker 1>seven tenths of one percent. Down, Industrials up one hundred

0:00:38.000 --> 0:00:40.400
<v Speaker 1>eight points, a gain of six tenths of one percent.

0:00:40.960 --> 0:00:43.720
<v Speaker 1>Ten year down nineteen thirty seconds, with the yield of

0:00:43.840 --> 0:00:48.000
<v Speaker 1>one point four two percent. Gold down a dollar seventy

0:00:48.000 --> 0:00:50.480
<v Speaker 1>thirteen fifty six the ounce, a drop there of point

0:00:50.520 --> 0:00:53.880
<v Speaker 1>one percent. And crude oil West Texas Intermediate now at

0:00:53.880 --> 0:00:56.800
<v Speaker 1>forty five oh two down thirty eight cents, a drop

0:00:56.840 --> 0:01:00.240
<v Speaker 1>of nine tenths of one percent. I'm Charlie Pellots done.

0:01:00.280 --> 0:01:04.839
<v Speaker 1>That's a Bloomberg business flash. You're listening to taking stock

0:01:04.959 --> 0:01:09.000
<v Speaker 1>with Kathleen Hayes and Pim Fox on Bloomberg Radio. Well,

0:01:09.600 --> 0:01:12.720
<v Speaker 1>Alcohol reporting today after the bell and officially kicking off

0:01:12.760 --> 0:01:15.759
<v Speaker 1>earning season. We want to get right to what is expected,

0:01:16.200 --> 0:01:19.839
<v Speaker 1>how this company is faring, and certainly it's a spinoff,

0:01:19.880 --> 0:01:22.400
<v Speaker 1>it's becoming two companies. Where does that stand down does

0:01:22.480 --> 0:01:25.160
<v Speaker 1>that mean for investors? Anthony Young joins us now Metals

0:01:25.160 --> 0:01:28.039
<v Speaker 1>and Mining analysts for mcquarie. Anthony, welcome to the show.

0:01:28.440 --> 0:01:30.520
<v Speaker 1>Thanks for having me, guys, so set the table for us.

0:01:30.520 --> 0:01:32.760
<v Speaker 1>You're an analyst. You're waiting so closely to see or

0:01:32.800 --> 0:01:35.679
<v Speaker 1>watching so closely to see what happens with Alcohol. What's

0:01:35.720 --> 0:01:38.560
<v Speaker 1>at the top of your list? Well, I mean this

0:01:38.720 --> 0:01:41.399
<v Speaker 1>quarter is somewhat unique given the split at the company

0:01:41.480 --> 0:01:44.240
<v Speaker 1>is going to be occurring at the company, So the

0:01:44.319 --> 0:01:47.360
<v Speaker 1>split will pay a major factor in this earnings release.

0:01:47.640 --> 0:01:50.960
<v Speaker 1>UM investors looking for further details on that, but then

0:01:51.000 --> 0:01:54.240
<v Speaker 1>also fundamentally UM trying to figure out, you know, what's

0:01:54.240 --> 0:01:56.560
<v Speaker 1>going on with the aluminium business and what's going on

0:01:56.920 --> 0:02:00.640
<v Speaker 1>with the downstream or their industrials business, and looking at

0:02:00.680 --> 0:02:04.080
<v Speaker 1>the UM drivers that are impacting that and the profitability

0:02:04.120 --> 0:02:06.920
<v Speaker 1>if they're able to generate in those two companies once

0:02:06.960 --> 0:02:11.399
<v Speaker 1>they split. Anthony, tell us the details about these two companies,

0:02:11.440 --> 0:02:13.600
<v Speaker 1>what are they going to do and is this also

0:02:13.680 --> 0:02:17.560
<v Speaker 1>beneficial for investors? Well, I think it will be beneficial

0:02:17.639 --> 0:02:22.040
<v Speaker 1>for investors. You know. Uh, you do have this somewhat

0:02:22.040 --> 0:02:25.880
<v Speaker 1>of a conglomerate with Alcoa, and you have five divisions UM.

0:02:26.080 --> 0:02:30.200
<v Speaker 1>Two divisions on the upstream one that produces aluminum and alumina,

0:02:30.440 --> 0:02:33.240
<v Speaker 1>and then on the downstream UM you have the world

0:02:33.320 --> 0:02:38.919
<v Speaker 1>products and engineered um products and transportation and construction systems UM.

0:02:38.960 --> 0:02:42.000
<v Speaker 1>So to split these into two different companies, UM, I

0:02:42.000 --> 0:02:45.959
<v Speaker 1>think it will allow management to focus on cost cutting. UM.

0:02:46.000 --> 0:02:50.320
<v Speaker 1>It will also allow investors to have a better feel

0:02:50.440 --> 0:02:53.280
<v Speaker 1>on how the how each of these entities should be

0:02:53.360 --> 0:02:57.840
<v Speaker 1>valued separately. This is a very large picture question, but

0:02:57.880 --> 0:02:59.440
<v Speaker 1>I guess it's the kind of question where people are

0:02:59.440 --> 0:03:02.200
<v Speaker 1>gonna be waiting to here on the call from Alcoa.

0:03:02.360 --> 0:03:05.600
<v Speaker 1>A lot going on in the world and Brexit, for example,

0:03:05.720 --> 0:03:08.120
<v Speaker 1>some have contended that is going to cause a broader

0:03:08.160 --> 0:03:11.600
<v Speaker 1>slow down in Europe, which accounted for about of alcohol

0:03:11.680 --> 0:03:17.520
<v Speaker 1>is fisvenue. Yes, you know, I think that the Brexit

0:03:17.600 --> 0:03:21.400
<v Speaker 1>will be something that almost every company will probably address

0:03:21.919 --> 0:03:24.880
<v Speaker 1>as we go through earning season. And I'm sure a

0:03:24.880 --> 0:03:28.960
<v Speaker 1>lot of companies UM or some companies that miss earnings

0:03:29.080 --> 0:03:31.600
<v Speaker 1>very well may point to still down in business activity

0:03:31.880 --> 0:03:34.239
<v Speaker 1>UM surrounding that. But I think that when you look

0:03:34.240 --> 0:03:37.920
<v Speaker 1>at the commodity space right now, UM, a low interest

0:03:38.000 --> 0:03:43.720
<v Speaker 1>rate environment UM should be UM, you know, supportive to commodities. Also,

0:03:43.960 --> 0:03:47.560
<v Speaker 1>I think here in the US specifically UM, you know,

0:03:47.600 --> 0:03:49.520
<v Speaker 1>when you're looking at the p m I numbers and

0:03:49.560 --> 0:03:52.560
<v Speaker 1>some of these other leading indicators, UM, there's a growing

0:03:52.680 --> 0:03:57.160
<v Speaker 1>sense of the recovery UM really taking holds and possibly

0:03:57.200 --> 0:04:00.360
<v Speaker 1>picking up a little bit here over the coming orders.

0:04:00.400 --> 0:04:03.880
<v Speaker 1>What should lead to better demand particularly for some of

0:04:03.920 --> 0:04:08.000
<v Speaker 1>the industrial components that alcohol provides two things like the

0:04:08.040 --> 0:04:14.920
<v Speaker 1>aerospace and UM the power generation industries. Anthony, I know

0:04:15.040 --> 0:04:17.440
<v Speaker 1>that we're looking for what earnings per share to come

0:04:17.440 --> 0:04:20.279
<v Speaker 1>in for the second quarter of nine cents UH second

0:04:20.320 --> 0:04:24.279
<v Speaker 1>quarter revenue estimates about five and a quarter billion. And

0:04:24.640 --> 0:04:28.800
<v Speaker 1>one of as far as the split off goes, having

0:04:28.800 --> 0:04:31.520
<v Speaker 1>two different types of businesses under one umbrella, does that

0:04:31.640 --> 0:04:34.000
<v Speaker 1>create a kind of cushion? You know, when one part

0:04:34.080 --> 0:04:36.120
<v Speaker 1>of the business does well, the other part might not,

0:04:36.240 --> 0:04:39.760
<v Speaker 1>so that there's a balance. Why is splitting it up

0:04:39.760 --> 0:04:41.919
<v Speaker 1>into two so much so much better for the for

0:04:41.960 --> 0:04:46.839
<v Speaker 1>the corporation. Well, you do have some advantages I think

0:04:46.839 --> 0:04:50.080
<v Speaker 1>with conglomerates, but I think when you have these two

0:04:50.760 --> 0:04:55.080
<v Speaker 1>UM you know, they're seemingly related, but they're also complete

0:04:55.160 --> 0:04:59.120
<v Speaker 1>distinct businesses UM, it should just allow for more of

0:04:59.160 --> 0:05:04.480
<v Speaker 1>a focus. I think that UM basically, instead of having

0:05:04.560 --> 0:05:07.360
<v Speaker 1>two companies or excuse me, instead of having one company

0:05:07.400 --> 0:05:10.960
<v Speaker 1>that is in the process of restructuring and you know,

0:05:11.080 --> 0:05:15.200
<v Speaker 1>management possibly focusing on one division or another UM and

0:05:15.680 --> 0:05:19.000
<v Speaker 1>restructuring that over time, I think that with the two

0:05:19.040 --> 0:05:22.600
<v Speaker 1>separate entities, you'll have two separate management teams that can

0:05:22.760 --> 0:05:26.360
<v Speaker 1>focus on positioning each of their businesses UH and the

0:05:26.440 --> 0:05:30.680
<v Speaker 1>best possible manner UM for where they should fit into

0:05:30.920 --> 0:05:34.680
<v Speaker 1>the supply chain with respect to UM, lightweight metals and

0:05:34.720 --> 0:05:40.680
<v Speaker 1>industrial components. So I think that they're Unfortunately for ALCOHOLAH,

0:05:40.720 --> 0:05:42.640
<v Speaker 1>there's a lot of work to be done here, but

0:05:42.760 --> 0:05:46.160
<v Speaker 1>I think that with two management teams that work can

0:05:46.200 --> 0:05:49.039
<v Speaker 1>be done more quickly than it could be under just

0:05:49.200 --> 0:05:51.480
<v Speaker 1>one roof. I think, can you give us an example

0:05:51.520 --> 0:05:54.280
<v Speaker 1>of a company is similar to all coal or not

0:05:54.360 --> 0:05:57.360
<v Speaker 1>who has done something like this where it failed or

0:05:57.400 --> 0:06:00.440
<v Speaker 1>where it succeeded wildly, some some reason to give us

0:06:00.480 --> 0:06:02.080
<v Speaker 1>why we should be doubtful this is going to work

0:06:02.160 --> 0:06:05.000
<v Speaker 1>or confident that it will. Yeah, you know, I think

0:06:05.080 --> 0:06:08.760
<v Speaker 1>that that is that's a tough question because you know,

0:06:08.960 --> 0:06:13.200
<v Speaker 1>when you think about succeeding or failing UM, whether it

0:06:13.360 --> 0:06:16.200
<v Speaker 1>be the stock price or the inherent value of the

0:06:16.240 --> 0:06:20.120
<v Speaker 1>business or the cash generation. You know, it's sort of

0:06:20.200 --> 0:06:22.480
<v Speaker 1>you have different metrics that you may look at. For example,

0:06:23.040 --> 0:06:26.440
<v Speaker 1>UM b HP when they split into South thirty two

0:06:26.920 --> 0:06:30.760
<v Speaker 1>UM and then the legacy b HP iron ore energy,

0:06:31.320 --> 0:06:35.039
<v Speaker 1>UM copper and met coal businesses. You know that the

0:06:35.120 --> 0:06:37.960
<v Speaker 1>South thirty two today just picked higher than the I

0:06:38.080 --> 0:06:41.839
<v Speaker 1>p O price UM where it was historically, and that

0:06:41.839 --> 0:06:43.840
<v Speaker 1>that equity, at least by the market, seems to be

0:06:44.400 --> 0:06:46.880
<v Speaker 1>UM more attractive now than it had been in the past.

0:06:47.320 --> 0:06:49.880
<v Speaker 1>So I guess from a stock perspective that one is

0:06:49.920 --> 0:06:51.880
<v Speaker 1>now working. But you know, it was a very long

0:06:51.960 --> 0:06:55.400
<v Speaker 1>time frame. It was underwater for twelve months here relative

0:06:55.480 --> 0:06:58.680
<v Speaker 1>to UM the spin price, So I think that you know,

0:06:58.760 --> 0:07:02.120
<v Speaker 1>it's not to say that UM Alcohol will split and

0:07:02.320 --> 0:07:06.719
<v Speaker 1>both stocks will immediately trade higher UM going into that event,

0:07:07.160 --> 0:07:11.960
<v Speaker 1>but I think that a split will again allow the

0:07:12.000 --> 0:07:17.160
<v Speaker 1>management teams to focus on the fundamentals and over time, um,

0:07:17.160 --> 0:07:21.000
<v Speaker 1>whether that's a quarter, six months, or two years down

0:07:21.040 --> 0:07:23.840
<v Speaker 1>the road, it will be better for investors. Thank you

0:07:23.920 --> 0:07:26.720
<v Speaker 1>very much for spending time with us. Anthony Young is

0:07:26.840 --> 0:07:32.520
<v Speaker 1>medals and mining analysts for mcquarie, speaking about ALCA. They

0:07:32.560 --> 0:07:36.760
<v Speaker 1>will be reporting earnings after the close of trading today.

0:07:36.800 --> 0:07:39.600
<v Speaker 1>This is taking Stock. I'm pim Fox, my co host

0:07:39.720 --> 0:07:48.600
<v Speaker 1>Kathleen Hayes, and this is Bloomberg. Brooklyn is exploding. Ellen

0:07:48.680 --> 0:07:52.720
<v Speaker 1>Freudenheim joins his next she's the author of the Brooklyn Experience.

0:07:53.440 --> 0:07:57.000
<v Speaker 1>I'm going to find out if there are opportunities for investors.