Alcoa (AA) and the 2Q12 earnings season

the results

AA reported 2Q12 earnings results last night.  The company earned profits of $61 million, or $.06 per share, for the quarter, on revenue of $6 billion.  The result exceeded the consensus of 18 professional analysts covering AA by $.01 per share.

is AA a bellwether?

AA is the first major US company whose accounts run on a calendar year to report results each quarter.  Its end products, alumina and aluminum, are key industrial raw materials.  As a result, Wall Street looks will special interest to what AA will say.

In my view, AA’s results vs. the analyst consensus aren’t that important, unless the reported numbers are hugely different from the estimates.  AA is a highly complex global company with very sophisticated management.  It has many possible suppliers of its inputs, all of which can have complicated–and different–contractual arrangements.  Some have equity ownership interests by AA, which vary by supplier.  I think no outsider has much of a chance, even after years of trying, of creating a financial model of AA’s operations that would predict earnings per share with a high degree of accuracy.

I think there are implications for the rest of Wall Street in the earnings figures themselves.  It says something if AA makes a lot of money in a given quarter, or a little, or makes a loss.

what is important from AA

If you’re a shareholder, you’d focus on the continuing ability of the company to generate cash flow, and to increase the efficiency of its operations, in almost any economic environment.  That’s been a constant for years and years.

If, like me, you’re not. you’ll pay more attention to what AA says about the world economy.

What jumps out to me from yesterday’s conference call is:

–the global aerospace business continues to be very strong

–automotive is good, especially in the US, where AA is revising its expectations up

–there are early signs of a pickup in the US cans/packaging business

–the main macroeconomic area–no surprise here–is Europe.

My overall takeaway: most of the world is in roughly the same shape that the consensus believes, but that the US may be a little bit better.


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