Alcoa Earnings, A Sideshow Compared To Forward Expectations (AA)

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If you care about earnings in the commodity and metals sector, Alcoa Inc. (NYSE: AA) has just missed its earnings and given cautious guidance.  It posted earnings of $0.33 per share on $7.2 billion in revenue.  First Call had earnings estimates of $0.54 and $7.23 billion in revenue.  That $0.33 includes about $0.04 from a smelter shut down and $0.06 negative impact from currency.  The earnings may only be the start of the problem.

The company is noting that aluminum prices have fallen steeply, inputcosts remain high, and demand has softened further.  To make mattersworse, Alcoa’s president said "The resulting margin squeeze will have a greater impact going forward…"

The company is stopping all non-critical capital projects, is makingreductions to match market conditions, halting certain production, andsuspending its share buyback plan.

We did not get formal guidance from the company, but the commentspretty much tell the entire story.  Alcoa shares closed down 7% at$16.73.  Shares had dropped initially, but it now looks up 7% inafter-hours trading.  With shares at 5-year lows, sometimes stocksrally just on investors being cautious with their spending.   

Jon C. Ogg
October 7, 2008