Alcoa Inc. (NYSE:AA), traditionally one of the first companies to announce their earnings each quarter, revealed a $0.06 EPS following Monday’s trading, beating expectations of $0.05 a share. Last quarter, the company beat expectations, with earnings of $0.10 on $6 billion in revenue. Alcoa has been repeatedly trading down over the last calender year, in fact, no stock in the Dow Jones Industrial Average has been suffering more than the New York based aluminum producer. Their stock has fallen over 47% in the last twelve months, a plunge that resembles no less than a Kardashian neckline.
Insiders expected a drop of at least 80% and today’s Q2 earnings were indeed down, but ahead of forecasts. Revenue for the second quarter was $5.96B vs. analyst estimates of$5.81 billion.
Owing primarily to a two-year low on the price of aluminum on the London Metal Exchange. Increased revenue in the automobile and aerospace sectors (downstream) was never expected to offset an upstream that has suffered greatly due to the eight year surplus of global aluminum supplies that have seen prices fall off the map. Three month deliverable aluminum has dropped 23% since last year on the London Metal Exchange averaging a mere $2,019 a ton in the second quarter.
This upstream decline was perhaps best explained last week by Citigroup Inc. (NYSE:C) analyst Brian Yu. Yu, while complimenting the company in some regards, acknowledged that the global surplus and price of aluminum is an insurmountable hurdle for Alcoa this quarter.
“The company continues to talk about their productivity gains, and I think it’s an important and notable effort on their side to lower cash cost, but not enough to offset the sharper drop in aluminum prices.”
The bankruptcy filing of Lehman Brothers Holdings Inc. in September of 2008 is clearly still affecting the earnings of Alcoa, Inc. The filing was the single largest reason for the sagging of commodities prices and surplus stockpiling of aluminum by producers worldwide. The global surplus had existed for four consecutive years, but it stalled construction worldwide and has since contributed to an additional four years of surpluses.
If there is an upside to today’s announcement, it is the fact that Alcoa is delivering more to producers than in 2011. As car, heavy truck, and plane makers strive to make lighter products to increase fuel efficiency, Alcoa has an upside worth mentioning. This upside however, will take time to realize as nearly every major aluminum producer struggles to clear their inventories while awaiting a rise in prices to offset gains in the downstream market.
For the Dow’s sake, and investor and consumer confidence levels, it’s imperative that additional earnings reports due this week don’t mirror the numbers shown by Alcoa.
Alcoa stock was up 0.40% today, and closed at $8.76.
The stock is up 0.80% after hours on the initial positive reactions to the earnings results.