by Michael Tarsala
Earnings season started with Alcoa (AA) slightly beating significantly lowered analyst expectations — not a rousing endorsement in any way.
Sometimes Alcoa is falsely seen as an earnings bellwether just because it is the first major company to report each earnings season. I think the earnings of any one company should not be given that much credence.
That said, the pricing power for Alcoa looked very weak in Q2, even though demand was still strong and it’s made lots of cost-cutting progress in recent quarters.
There was little in the report to dispel the notion that it could be a difficult earnings season for many companies — especially in the economically-sensitive industrial sector.
The world’s largest aluminum producer earned 6 cents a share excluding special items, vs. expectations it would earn 5 cents. Earlier in the quarter, Alcoa had been expected to earn as much as 15 cents a share.
Alcoa’s management spoke bullishly about demand from its aerospace and automotive customers. Both are eager to use lighter materials to save fuel. To be sure, revenue beat analyst expectations in the quarter.
Still, there was not much the company could do to keep from being affected by lower aluminum prices. Aluminum that fetched around a $1 per pound at the end of March dropped as much as 20 cents toward the end of the quarter – nearly a two-year low, amid worries about both the European economy and a China slowdown.
That’s not good news for Alcoa. Raw aluminum makes up about a third of Alcoa’s revenue.
It’s not necessarily good for other industrial companies, either.
Photo by: Christine Johnstone
