Alcoa Inc (AA): Earnings Bring Hope for Troubled Stock

It’s been a bad year for aluminum producer Alcoa Inc (NYSE:AA)‘s stock.

Shares of this member of the Dow Jones Industrial Average (INDEXDJX:.DJI) have plunged more than 8% since the start of 2013, and current worldwide trends aren’t giving investors anything to feel optimistic about. Now with earnings season coming around again, analysts everywhere have a chance to see just how Alcoa Inc (NYSE:AA)’s managing the tough times in the industrial sector.

Alcoa Inc (NYSE:AA)

With the numbers in the books, did Alcoa Inc (NYSE:AA) live up to expectations?

Hits and misses
First, the news: Analysts had projected earnings per share of $0.10 for the struggling company, and Alcoa Inc (NYSE:AA) managed to beat that number by a hair. The company reported $0.13 in EPS — $149 million in net income — for the first quarter; even without one-time items, Alcoa Inc (NYSE:AA) still beat expectations by a cent, with an EPS result of $0.11. That’s a year-over-year gain of $0.01, compared with last year’s $0.10 adjusted EPS mark.

Unfortunately, the company’s revenue didn’t make the grade in the first quarter. Alcoa Inc (NYSE:AA) reported revenue of $5.8 billion, just missing analyst projections of $5.9 billion. That mark fell 3% year over year, a casualty of a weak aluminum market that hasn’t managed to find its footing in 2013.

Investors haven’t liked what they’ve seen so far: In after-hours trading, Alcoa’s stock has fallen more than 1%. So which story should you buy — or sell? Is Alcoa slipping and sliding with its falling revenue, or is it slowly digging itself out of the hole made by the sluggish global economy?

What’s bad, what’s good
Make no mistake: Alcoa’s still facing plenty of trouble. Commodity prices across the mining and metals sector have beaten a hasty retreat in the recent past. Alcoa’s hardly been the only company affected. Among fellow aluminum producers alone, rivals Rio Tinto plc (ADR) (NYSE:RIO) and BHP Billiton Limited (ADR) (NYSE:BBL) have felt the blow of depressed prices. The latter’s revenue dove by 14% in the last half of 2012 as low commodity prices took a bite out of sales; Rio Tinto plc (ADR) (NYSE:RIO)’s desperately trying to slash costs after recording a full-year loss.

Prices were mainly responsible for Alcoa’s dipping revenue today, although the company’s reduced production in Europe didn’t help. That latter point is a good thing for Alcoa’s long-term future, however: With growth so stagnant in Europe, continuing to commit resources to a pointless expenditure would only drag on tomorrow’s earnings. Better to bite the bullet today and hope more promising markets pay off, such as if China emerges from its recent slowdown and picks up infrastructure spending.

However, signs of hope point toward a light at the end of this tunnel. Volumes have picked up in Alcoa’s downstream business, compensating for lower prices with increased production. It’s a temporary measure to stabilize revenue and earnings, but if prices ever pick up, that trend will send Alcoa’s earnings higher and higher. The downstream business represents more than 70% of the company’s after-tax earnings; investors should hope for even more volume growth here in the future.

Alcoa still expects 7% growth this year. Higher margins and operating income reported today from its engineered products and solutions business and global rolled products division should help the company achieve that goal. Engineered products will probably remain Alcoa’s workhorse, as selling parts and materials to manufacturers such as automobile firms and aerospace companies will take advantage of these industries’ gains.

What does this mean for Alcoa’s stock? Don’t expect the turnaround immediately. Prices will continue to remain low as Chinese production of  aluminum continues to grow and inventory remains high, and engineered products won’t be able to make up all that ground in just a few quarters.

For the long-term investor, however, the good from today’s earnings outweighs the bad. Increased downstream volume and improving performance from key divisions bode well for Alcoa’s future. This company’s on the right track, even if it is a slow track, to digging its stock out of the red. For investors, patience and a healthy long-term view are the right approaches with this pick.

The article Earnings Bring Hope for Alcoa’s Troubled Stock originally appeared on Fool.com.

Fool contributor Dan Carroll and The Motley Fool have no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!