Alcoa to kick off quarterly earnings season
Alcoa Inc. will kick off the earnings season when it reports first-quarter results Tuesday after the markets close. Analysts expect the aluminum manufacturing giant to post a loss because of slowing economies in key markets in Europe and China.
WHAT TO WATCH FOR: Alcoa should offer insight into how the global aluminum industry is coping with a glut of inventory, weaker prices and higher costs.
Aluminum demand has been weak during the last two quarters as the pace of economic growth has slowed in China and Europe has struggled with a debt crisis. But global aluminum production rose about 6 percent in January and February compared with the same two months of 2011, BNP Paribas metals analyst Stephen Briggs wrote in a recent research note.
Chinese companies still are producing huge quantities of aluminum, which has weighed on prices. Spot aluminum prices on the London Metal Exchange fell about 2 percent to 3 percent from the fourth quarter, Argus Research analyst Bill Selesky said.
The glut of aluminum supplies has prompted Alcoa and some other manufacturers to cut production. Alcoa announced in January that it would reduce its global smelting capacity by about 12 percent. Last week, the New York manufacturer said that it would cut production of alumina by 390,000 metric tons. Alumina is a raw material needed to make aluminum.
Alcoa has also faced higher transportation and energy costs in the first three months of the year.
Its share price rose 15.8 percent in the first quarter after falling nearly 44 percent in 2011.
WHY IT MATTERS: Alcoa's performance can reflect broader economic trends because its aluminum is used in a number of products — from transportation and construction to consumer electronics. Nearly 80 percent of its sales are in the U.S. and Europe.
WHAT'S EXPECTED: Analysts surveyed by FactSet predict a loss of 4 cents per share on revenue of $5.77 billion.
Selesky said that Alcoa could slightly cut its 2012 forecast for a 7 percent increase in global aluminum demand. If that happens, investors may see the results as a negative start to the quarterly earnings season, he said.
Alcoa previously forecast strong first-quarter demand from the aerospace and automotive industries and continued weak demand from building and construction businesses and commercial transportation in Europe.
LAST YEAR'S QUARTER: Alcoa's reported net income of $308 million, or 27 cents a share, on revenue of $5.96 billion.
