Providing his first reactions to the Q2 2014 Alcoa Inc (NYSE:AA) earnings data, which was released yesterday after market close, analyst firm Bradford Research’s President, Charles Bradford, told CNBC in a interview said that he was surprised by the robust earnings from the traditional sectors of the company.
He stated that, “actually the surge in earnings for the second quarter was not in the automobile and aerospace markets, but in the basic primary aluminium.”
Mr Bradford went on to compare the after tax operating income between the two sectors to underline his point. He called out the $112 million increase in after tax operating income that Alcoa Inc (NYSE:AA) has recorded in the Q2 from its primary aluminium commodity business, as against the relatively weaker $35 million increase in after tax, operating income from its downstream business which currently constitutes up to 75 percent of firm’s overall business. The president of the analyst firm also pointed out that the upturn in the primary business was due to the 4 percent increase observed in the price of aluminium in the international market.
On being asked if the business diversification efforts, that Alcoa Inc (NYSE:AA) has mounted in the recent past, would pay off, Mr Bradford went on to express his opinion that the ongoing diversification efforts are likely to pay off only in the longer term.
In short term “it will not be as attractive as it is being made out to be by the analyst community”.
The lack of potential to grow the business in the aerospace sector due to capacity constraints in the aerospace industry, in tandem with the U.S automobile industry current peak manufacturing loads have been sighted by the analyst guru as reasons for the expected slow expansion in the downstream sector.
For the second quarter of 2014, Alcoa Inc (NYSE:AA) has reported a net profit of $0.12 per share, which was in line with the estimates made by analysts. At the same time, the company’s revenue went up by 7% on the year and amounted to $5.8 billion.
It is interesting to note at this juncture that sceptics had started to write off Alcoa Inc (NYSE:AA) stock, after the Dow Jones Industrial Average Index decided to drop the stock in September last year. This was the first time in 54 years that this particular stock was not part of DJIA. The metal firm was replaced by Nike Inc (NYSE:NKE) on DJIA. Since being taken out of DJIA tracker, Alcoa Inc (NYSE:AA) has posted close to 90 percent gains at the browsers, where as Nike Inc (NYSE:NKE) in the same period has posted 22 percent gains.