Alcoa Beats the Bears and Smashes Analyst Expectations



Alcoa Inc. (NYSE:AA) — the world’s third-largest producer of aluminum — closed Tuesday’s regular session down 0.47 percent but has advanced over 3 percent in pre-market trading this morning after reporting third-quarter financial results that came in ahead of analyst expectations. Revenue of $5.8 billion is decidedly “solid,” effectively flat on the year despite a 7 percent decline in the cash price of aluminum on the London Mercantile Exchange. Analysts were expecting $5.63 billion.

Adjusted net income of $120 million, or 11 cents per share, smashed analyst expectations of six cents per share. However, including special items (“primarily tied to optimizing the Company’s upstream portfolio”) net income was just $24 million, or 2 cents per share.

“Our performance this quarter shows our repositioning of the Company is on the right path,” said Chairman and CEO Klaus Kleinfeld. “We continued to build our value-add businesses, capturing demand for innovative material solutions across multiple markets. Our commodity business delivered better performance in a tougher market environment, and we continued to reshape the portfolio to lower the cost base. Across the board, productivity was exceptional — achieving our full year target in the first nine months.”

This was Alcoa’s first earnings report since losing its coveted position in the Dow Jones Industrial Average, which it had been a member of for 54 years. In a sign of the times, the company was replaced by athletic-gear maker Nike (NYSE:NKE). Alcoa issued a brief statement on the change, stating that the “composition of the Dow Jones Industrial Average has no impact on Alcoa’s ability to successfully execute our strategy, and we remain focused on delivering shareholder value.”

Alcoa certainly demonstrated that this quarter, once again beating analyst expectations and overcoming howling economic headwinds. Many investors soured on the company in the wake of the financial crisis as it struggled to achieve stable profitability, but the future is looking increasingly bright for the aluminum producer.

Emerging aerospace industries in China and India are consuming components produced by Alcoa’s engineered products and solutions division. Additionally, automakers are incorporating more aluminum into their vehicles, as the metal is more lightweight and energy-efficient than steel. Slowing economic growth in China may restrain demand from the Chinese construction industry to some degree, but — barring some economic catastrophe — overall economic conditions around the world are improving, which bodes well for aluminum demand.

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