Alcoa Delivers, While Tone Expected (AA)

Alcoa, Inc. (NYSE: AA) did manage to turn in better-than-expected performance to kick off earnings season.  That was expected of the company after the gains we have seen of late in its shares.  Fourth quarter income from continuing operations was $258 million, or $0.24 EPS.  The company also set a record for cash from operations and a fourth-quarter record for free cash flow.  Revenue for the quarter rose by 7% sequentially to $5.652 billion on higher pricing (9% in alumina and 11% in aluminum).  Thomson Reuters had estimates of $0.19 EPS and revenues were expected to be $5.68 billion.

This is the company’s highest quarterly income since the economic downturn but it does include a $35 million, or $0.03 per share, boost from special items.  Those special items included were for restructuring-related actions, discrete income tax benefits and non-cash, mark-to-market impacts of derivatives in several power contracts.  Cash from operations was a record $1.4 billion.

The earnings gain came from higher pricing, as well as further strengthening in most of Alcoa’s end markets and improved productivity.  The company noted earnings were somewhat offset by a weaker U.S. dollar, higher energy costs and higher raw material costs.

The problem with the earnings report, aside from shares being halted, is that Alcoa saves formal revenue and earnings guidance for its conference call.  Some loose guidance was given.

Alcoa sees aluminum growing another 12% percent in 2011 on top of last year’s 13% growth.  Longer-term, much longer-term, Alcoa is projecting that global aluminum demand should double by the year 2020. For the coming year it is projecting growth in all of its end markets globally.

The good news is that this is good news.  The bad news is that the shares had already run significantly ahead of earnings and it feels like the news is a net-neutral without getting to know its formal 2011 and 2012 guidance.  That sets up a bias toward a ‘sell the news’ reaction.

Until formal guidance is given, this still has to be considered incomplete data.

JON C. OGG