Alcoa Inc. (NYSE: AA): Q1 Earnings Preview 2010

Alcoa Inc., the largest US aluminum maker, will officially kick off the Q12010 earnings season after the market close on Monday, April 12, 2010. Analysts, on average, are looking for earnings of $.15 per share in the first quarter with estimates ranging between $0.06 and $0.27 per share. Revenues for the quarter are estimated to be $5.32 billion. In the Q12009, Alcoa reported a loss of 59 cents on revenue of $4.15 billion.

Alcoa is considered as a bellwether for investor sentiment toward the economy. The company is the world's third largest producer of primary aluminum with an annual capacity of 4.8 million metric tons per year (mtpy). It involves in the technology, mining, refining, smelting, fabricating, and recycling of aluminum. The company reported a net loss of $1.15 billion or $1.23 per share in fiscal 2009 as it was hit hard by soft demand from the automotive, construction and aerospace industries in light of the economic downturn. The company cut thousands of jobs, reduced output, slashed its dividend, trimmed spending and raised $1.3 billion through common stock and convertible notes offerings to cope with the situation.

In the preceding Q42009, the Pittsburgh, Pennsylvania-based company reported earnings of $277 million or $0.28 per share, compared to a net loss of $1.19 billion or $1.49 per share for the year-ago quarter. On an adjusted basis, the company earned 5 cents a share. Revenue fell 4.5% to $5.43 billion from $5.69 billion in the same quarter last year. Analysts, on average, expected the company to earn $0.06 per share on revenue of $4.82 billion.

Aluminum prices, which slumped early last year has recovered amid increased economic optimism and investor appetite for riskier assets. Prices have also got a boost from weaker dollar, recovery in housing market, stabilization in auto industry, consumer restocking and Chinese buying also supported prices. In the past 12 months, aluminum prices have jumped 54 percent in London. Historically, the automotive and construction markets have been the largest drivers of metal consumption, more than 50% of the total demand. Large automakers like Ford and Toyota have reported sharp jump in their US car sales in recent months. In January, Alcoa forecast that global demand for the metal will increase 10 percent this year.

The company generated free cash flow of $761 million in the fourth Q42009 and finished cash flow positive for the first time since Q22008. The company ended the Q42009 with $1.5 billion of cash on hand. The company's debt-to-capital ratio stood at 38.6% at the end of the quarter, a 390 basis point improvement from a year ago.

In recent quarters, Alcoa's performance has been negatively impacted by a spike in energy costs and dollar’s decline against the euro and the Brazilian real. Energy costs represent nearly 65% of Alcoa's refining costs and 70% of its smelting costs.

The U.S. aluminum giant recently announced that it has expanded its aluminum can recycling capacity at its Tennessee operations by investing $24 million. This expansion would ramp up Alcoa’s recycling capacity by about 50% from the current capacity of 54%. The expansion is in line with the company’s aim to expand its aluminum can recycling capacity to 75% by 2015 in North America. Alcoa believes that the recycling of these cans would help aluminum producers to reduce their power consumption by 95%. A higher amount of energy is required to make aluminum cans from raw aluminum compared to recycling the same.

In terms of stock performance, Alcoa shares have lost 10 percent since the beginning of the year.

Full Disclosure: None.

Alcoa Inc. (NYSE: AA): Q4 Earnings Preview 2009

Alcoa Inc. (NYSE: AA), the biggest US aluminum maker, will officially kick off the fourth quarter earnings season after the market close on Monday, January 11, 2010. Analysts, on average, expect the mining giant to report earnings of 7 cents a share on revenue of $4.81 billion. In the year ago quarter, the company reported a loss of 28 cents per share on revenue of $5.69 billion.

Alcoa Inc., often considered as economic bellwether by many, engages in the production and management of primary aluminum, fabricated aluminum, and alumina worldwide. It involves in the technology, mining, refining, smelting, fabricating, and recycling of aluminum.

Early in October, the Pittsburgh, Pennsylvania-based company reported that its third quarter profit tumbled 71% from last year, as the severe economic recession depressed demand and prices for the light metal. However, the results still managed to beat Wall Street estimates. It also marked the company's return to profitability after three consecutive quarterly losses. Net income totaled $77 million or $0.08 per share, compared to $268 million, or $0.33 per share, in the comparable quarter last year. Excluding one-time items, the company said that it earned $39 million or $0.04 per share. Sales dropped 34% to $4.62 billion from $6.97 billion in the same quarter last year. Sales rose 9% quarter-over-quarter. Analysts, on average, expected to report a loss of $0.09 per share on revenue of $4.55 billion. The company attributed the sequential improvement to an increase in realized prices for primary aluminum to $1,972 per metric ton from $1,667 per metric ton in the second quarter, as well as stabilization in the end markets.

Aluminum prices, which slumped during the early part of the year 2009, rallied in fourth quarter on government stimulus measures, increasing economic optimism, and investor appetite for riskier assets. Prices also got a boost from weaker dollar, recovery in housing market, stabilization in auto industry, consumer restocking and Chinese buying also supported prices. Historically, the automotive and construction markets have been the largest drivers of metal consumption, more than 50% of the total demand. Already, large automakers like Ford and Toyota have reported sharp jump in their US car sales. Aluminum prices have risen 75% on the London Metal Exchange from their February 2009 lows of $1,250. Overall, aluminum prices climbed 48% in the year 2009. In the fourth quarter alone, prices gained approximately 19%. Aluminum price reached $2,394 a metric ton on the London Metal Exchange, the highest level since October 2, 2008 amid speculations that snowfall in China will boost input costs and disrupt power, limiting metal production. The country shut 0.5 percent of its capacity to generate electricity as adverse weather hampered coal deliveries. Energy accounts for as much as half of the cost of making the lightweight metal. China is the world’s largest maker as well as user of aluminum.

Recently, Morgan Stanley analyst Mark Liinamaa upped his rating on the shares to “overweight” citing improving profitability in both alumina and some aluminum products. “The shares have rallied with the aluminum price, but we think further upside remains in an economic recovery scenario,” Liinamaa wrote. “We see higher linkage rate for alumina and long-term earnings potential in midstream and downstream assets not reflected in the current stock price.” The analyst predicts that aluminum prices could rise to $1.11 per pound.

Last month, Alcoa entered into a $10.8 billion joint venture with the Saudi Arabian mining company Ma’aden. Alcoa, which will own 40% of the project, is investing $900 million over four years. The venture is expected to produce a low-cost integrated aluminum complex, including a refinery, smelter and rolling mill. According to the joint statement released by the two companies, the venture "will become the world's preeminent and lowest-cost supplier of primary aluminum, alumina and aluminum products, with access to the growing markets of the Middle East and beyond." President and CEO Klaus Kleinfeld said the venture amounts to a "once-in-a-generation opportunity" for the company. No doubt, the project will give the company greater access to the world's biggest proven energy reserves as well as important markets in South Asia.

In terms of stock performance, Alcoa shares have gained 41 percent since the beginning of the year.

Full Disclosure: None.