Why Century Aluminum Co. Stock Crashed 20% on Thursday

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What happened

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Shares of Century Aluminum Co. (NASDAQ: CENX) stock closed down 20.4% today.

So what

Believe it or not, Century Aluminum actually posted a profit on Thursday -- $0.07 per share. Adjusted for so-called one-time items, however, the stock earned only a penny a share.

Making matters even worse, analysts had been telling investors to expect a profit of $0.22 per share on a pro forma basis. So viewed from the perspective of Wall Street, what Century reported was an earnings miss...by 95.5%! The fact that Century Aluminum grew both sales and profits sequentially, therefore, didn't save its stock from suffering a gigantic sell-off.

Now what

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Did investors overreact? Century Aluminum CEO Michael Bless insists that "operations remain stable and are performing at expected levels of operating efficiency," and points out that "profit conversion on higher revenue was strong despite the predicted increase in alumina costs." Furthermore, he predicts that "alumina unit costs will decrease in the third quarter."

Nevertheless, "other key raw materials" are rising in price, and Bless admits that this is a trend that will probably "continue for some time." This seems to augur ill for Century's prospects of reaching analyst targets for $0.24 per share in profits in Q3, and $0.30 in Q4 -- and management gave no guidance to the contrary.

With Century Aluminum stock now decidedly free cash flow-negative, and running $235 million in the red over the past 12 months, investors are probably best advised to steer clear of this stock for the time being.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.