Alcoa Shows Mixed Earnings Bag

Alcoa Inc, (NYSE: AA) has managed to meet its earnings expectations… or did it? The earnings report matters here because many investors try to use Alcoa as a predicting mechanism.  The headlines were shown at $0.00 EPS from continuing operations, but it reported earnings of $0.06 outside of ‘special items’ in the report. Excluding the impact of special items, income from continuing operations was $61 million.  Thomson Reuters was calling for $0.06 EPS.

For whatever it is worth, the $0.00 net number from operations is technically a $2 million loss. Revenue was listed as being sequentially flat but down by 9% from a year ago to $6.0 billion.  Thomson Reuters had estimates of $5.81 billion.

Alcoa noted that it faced a 4% decline in realized aluminum prices sequentially (from the prior quarter) and an 18% decline from a year ago. One thing that stood out was that the adjusted EBITDA for the second quarter was $517 million, down 17% sequentially and down 50% from the second quarter 2011. The company did note that it was able to capitalize on accelerating demand in high-growth end markets such as aerospace and automotive while it worked on reducing costs and improving performance in its upstream businesses.

Some items are worth noting here.  Cash on hand was $1.7 billion.  The company sees a global supply deficit in 2012 and sees a global demand growth of 7% in 2012.

You will really have to decide which “special items” are really just one-time expenses.  The description is as follows: “Special items in second quarter 2012 included reserves for environmental remediation, uninsured losses related to the Massena fire, a net discrete tax charge, and restructuring and other charges. In addition, during the quarter, Alcoa proposed to settle the Alba civil suit by offering Alba a cash payment of $45 million. Alcoa has also offered Alba a long-term alumina supply contract. Based on the cash offer, Alcoa recorded a $45 million charge. Alcoa currently estimates an additional possible charge of up to $75 million to settle the suit. In addition, Alcoa has been in dialogue with the Department of Justice and the Securities and Exchange Commission regarding their investigations. If a settlement of the government’s investigations can be reached, it is probable that the amount would be material in a particular period to Alcoa’s results of operations.”

Traders are trying to figure out how to react today.  Alcoa closed up 0.4% at $8.76 and shares are trading marginally higher at $8.80 in the after-hours session against a 52-week range of $8.21 to $16.16.

JON C. OGG