Alcoa's Report More Mixed To Positive, News Reports Call It "A Miss" (AA)

Alcoa, Inc. (NYSE: AA) has just unofficially kicked off the summer earnings season.  Shares were weak in the last two trading sessions ahead of the earnings report, but that is more tied to the market weakness than to the actual expectation that things were going to be bad.  Still, a move of more than 5% down from peak to trough in the last three trading sessions was enough to set the expectation bias in more of a neutral stance.

The aluminum and alumina giant reported earnings of $0.32 EPS and $6.59 billion in revenues.  Thomson Reuters had estimates of $0.34 EPS and $6.32 billion in revenues.  This is more than a doubling of its bottom line from a year earlier.  This is being recorded as a “Miss” on its report so far by major news headlines but the report is all in all more in-line than anything if you weigh the revenues and the earnings at the same rate.  There were also some headwinds that were explained on the cost side of the equation.  Those earnings estimates had also been coming down in recent days ahead of this report.

The slowing of China and India were coincidental with a rapidly forced slowdown out of Japan, but here is what we are seeing from Alcoa on its outlook. The company cited record quarterly alumina revenue and record mid- and down-stream performance today.  Alcoa called this economic recovery as being “uneven” but it sees its own outlook and for aluminum as a whole as being positive.  The report noted further that demand for aluminum continues to rise, as does growth in its major markets.  The company’s projection is that aluminum demand will grow about 12% in 2012 and will double by the year 2020.

On a sequential basis it saw higher alumina shipments up 8%, higher realized pricing for alumina by 7% and aluminum up 6%, and it also saw improved productivity and continued strong growth in major markets served by mid- and down-stream businesses.  There were a couple drags: “This was somewhat offset by a weaker U.S. dollar, along with higher energy and materials costs.”

Alcoa ended with $1.3 billion in cash on hand and it still claims to be well ahead of its 2011 financial targets.

More data will be picked apart since this one often leads the rest of the industry segments on outlook and the industrial capital spending trends.  Alcoa projects ‘continued growth’ in all major end markets on a global basis, as follows:

• aerospace (7 percent),
• automotive (4-8 percent),
• commercial transportation (7-12 percent),
• packaging (2-3 percent),
• building and construction (1-3 percent),
• and industrial gas turbines (5-10 percent).

Alcoa shares were down 2.87% at $15.91 today, but this was as high as $16.60 just on Thursday and the 52-week trading range is $9.92 to $18.47.  We are currently seeing shares trading up about 0.5% around $16.00 in the after-hours session.

Today’s news is going to be hard to call as being bad for the overall market.  Still, it is not euphoria either.  With the negativity coming out of Europe and the current sell-bias in the markets, we are only giving this report a “neutral-plus” call into earnings season for now.

JON C. OGG