Alcoa Preview: A Positive Start To Earnings Season?

Alcoa Preview: A Positive Start To Earnings Season?
By Alcoa ( [Public domain], via Wikimedia Commons

Strong Aluminum prices are set to give a boost to Alcoa Inc. (NYSE:AA) when the company announces its fourth quarter 2012 earnings results tomorrow. Alcoa’s earnings are traditionally considered the start of earnings season, and the tone they set often represents a trend in other industrial firm’s performance.

Alcoa Preview: A Positive Start To Earnings Season?

Citigroup Inc. (NYSE:C) analysts covering the company estimate that it will declare earnings per share of around 4 cents. Alcoa Inc. (NYSE:AA) reported earnings of 3 cents per share in the third quarter of 2012. In the fourth quarter of 2011 the company lost eighteen cents per share.

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The main driver of the company’s expected growth is the rise in aluminum prices in the period. The increases in the price of the commodity are set to offset the effects of a weaker US dollar on the company’s bottom line. The lower demand for the company’s aluminum products in Winter is seen as another drag on earnings.

Alcoa is one of the world’s top manufacturer of Aluminum products. The company is involved in the production of base aluminum and many other finished aluminum products. These are used in the aviation industry, the construction industry, defense, consumer electronics and countless others. It’s wide exposure to the industrial sector has made it a bellwether for the entire sector. If Alcoa Inc. (NYSE:AA) does very poorly, or very well, tomorrow, investors will bring that knowledge to bear on other industrial companies.

The report asserts that the company missing or overshooting earnings by a penny will matter much to Wall Street’s opinion of the company. The Citigroup Inc. (NYSE:C) analysts are more concerned with the inventory problems in the aluminum market. Inventories increased 9.3% in 2012. The analysts expect the price of the commodity to increase as soon as inventory comes under control.

A RBC Capital Markets report on Alcoa Inc. (NYSE:AA) differed slightly from the Citigroup Inc. report, at least in pricing, if not in its central thesis. The RBC report also suggests that the rising price of aluminum will be the most important factor in the company’s earnings, but it estimates the company will earn 6 cent per share.

Alcoa Inc. (NYSE:AA) shares fell by a little under 1.5% in trading today, in anticipation of tomorrow’s earnings. The company saw its share price move by almost no magnitude during 2012, finishing the year up at 0.35%, despite a spike in the early part of the year on a perceived quick recovery in the American economy.

No such recovery arrived, and Alcoa stock, much like the wider market’s, performed poorly in the second half of 2012. Alcoa’s position as a producer of aluminum makes it a very worthy thermometer for the performance of the industrial economy. Unfortunately that economy saw very little substantial improvement in 2012.

Alcoa will report its earnings tomorrow, Tuesday 8th January, after the close of the market. The firm will hold a conference call at 5pm with investors and analysts to discuss its performance. As has been the since case last year, analysts see very little reason to invest in the company. A Reuters consensus poll of 19 analysts rated the firm a hold, with just three analysts rating it as a buy.

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