NEW YORK (AP) — The first earnings season of 2012 starts Monday when Alcoa reports fourth-quarter results after the markets close. Analysts expect slightly higher revenue than a year ago. Earnings will likely be lower because of weak demand for aluminum in construction and the slowing economies of Europe and China.
The company said Thursday that it will close or reduce operations at some of its smelters, cutting its global smelting capacity by about 12 percent. Alcoa expects the shutdowns and other restructuring actions will impact fourth-quarter earnings by 15 or 16 cents a share.
WHAT TO WATCH FOR: The aluminum manufacturing giant's performance is tied closely to the global economy because of its vast customer base around the world.
Europe's financial struggles and slower growth in China have resulted in less demand for aluminum in a number of businesses, including construction. Two key exceptions are the aerospace and automobile industries, where Alcoa has seen continued strong demand for aluminum to build aircraft and cars.
Inventories remain high and aluminum prices have fallen steadily since peaking in April. The price dropped about 12 percent in the fourth quarter from the July-to-September quarter. At the same time, Alcoa faced higher energy and raw materials costs — factors the company blamed for the smelter cutbacks.
The challenges have put pressure on Alcoa's share price, which fell nearly 10 percent in the fourth quarter. For the year, its stock price was down almost 44 percent.
Alcoa, based in New York, stands by its forecast of 12 percent year-over-year growth in overall aluminum demand but has said the pace was slower in the second half of the year.
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 expect earnings of 1 cent per share on revenue of $5.78 billion. At the end of September the forecast was for earnings of 28 cents per share on revenue of $6.3 billion. That came down steadily with softer demand for aluminum, rising energy costs and falling prices.
Many analysts believe aluminum prices will start to turn around this year, but a lot will depend on the global economy. Aluminum prices tend to react to general economic sentiment rather than true fundamentals, Morningstar Inc. analyst Bridget Freas said.
LAST YEAR'S QUARTER: Alcoa reported net income of $258 million, or 24 cents a share, in the year-ago quarter. Revenue totaled $5.65 billion.