Rising Costs & Expenses Pressure Alcoa: What's the Road Ahead?

Core Insights - Alcoa Corporation (AA) is facing rising costs and expenses, with a 5.9% increase in cost of sales and an 8.7% rise in selling, general and administrative (SG&A) expenses in 2025 [1][8] Cost Structure - Energy constitutes approximately 24% of both alumina refining and primary aluminum production costs in 2025, making fluctuations in electricity and natural gas prices a significant risk factor [2][8] - Raw material inputs are also contributing to cost pressures, with Alcoa consuming 2.2-4.0 metric tons of bauxite and 80-130 kilograms of caustic soda for each metric ton of alumina produced, and 1.91-1.94 metric tons of alumina and 13.26-16.82 megawatt-hours (MWh) of electricity for each metric ton of aluminum produced [3] Capital Expenditures - Alcoa's capital spending related to environmental compliance and asset optimization is increasing, with $140 million spent on environmental control projects in 2025 and an expected $170 million in 2026 [4][8] Operational Focus - Despite the cost pressures, Alcoa is concentrating on operational efficiency, renewable energy usage, and disciplined capital allocation to safeguard margins, although sustained volatility in energy and raw material prices may continue to challenge near-term profitability [5] Peer Comparison - Among major peers, Constellium SE (CSTM) experienced a 13.5% increase in cost of sales and a 6.1% rise in SG&A expenses in 2025, while Ryerson Holding Corporation (RYZ) saw a 0.7% increase in cost of sales and a 1% rise in SG&A expenses [6] Stock Performance and Valuation - Alcoa's shares have increased by 52.1% over the past three months, compared to the industry's growth of 56.1% [7] - The company is trading at a forward price-to-earnings ratio of 12.23X, slightly above the industry's average of 12.22X, and holds a Value Score of A [10] Earnings Estimates - The Zacks Consensus Estimate for Alcoa's 2026 earnings has risen by 21% over the past 60 days, with current estimates for the current quarter at $1.20 and for the current year at $5.19 [11][12]