Here’s How Alcoa’s Earnings Will Weigh on the S&P 500

With the advent of the third-quarter earnings season at hand, Alcoa (NYSE:AA), the longtime barometer for the health of global manufacturing, will release its earnings report shortly after 4 p.m. EST today. However recent data, analyzed by research firm FactSet, shows that the company may not be such a good indicator after all.

Because Alcoa makes products used by the construction industry, automakers, and home appliance manufacturers, the company’s health is used to determine the health of the manufacturing industry as a whole. However, recent statistics suggest that what has been a good or bad quarter for Alcoa has not necessarily impacted other companies.

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Since 2009, the times Alcoa missed Wall Street’s earnings forecast, 72.4 percent of the companies in the S&P 500 went on to beat the profit estimate.

“It appears that Alcoa’s earnings performance relative to estimates has little predictive value in determining the earnings performance of the remaining companies in the index,” said FactSet senior earnings analyst John Butters in his analysis.

When the past ten years were analyzed, Butters reported that the S&P has gone up in value 15 of the 19 quarters Alcoa beat Wall Street’s profit estimate. In comparison, in the 21 quarters Alcoa missed consensus, the S&P only dropped 0.6 percent over the next three months.

So far this year, Alcoa has been curbing production to control its expenses, but expects consumer demand to grow by 7 percent. According FactSet, the company is expected to break even on an earnings-per-share basis and its sales are forecast at $5.56 billion. Furthermore, shares in the company are up 6 percent since January, with the majority of its gains coming over the past three months.

Coming into the earnings season, a large number of companies have lowered expectations for the quarter; 80 companies in the S&P have issued negative EPS pre-announcements to date.

Overall, the estimated earnings growth rate for the third quarter remains unchanged for this week, standing at -2.7 percent. According to FactSet, Five of the ten sectors are predicted to report declines in earnings, led by the Materials sector with a -21.9 percent decline, and the Energy, sector with a -20.4 percent decline. Despite upward revisions to several companies, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) included, small downward revisions to estimates for companies in most of the other sectors offset the gains.

The financial sector has, so far, been the only sector to see an improvement in expected earnings growth. Whether the results matched the predictions of analysts’ will be known when JPMorgan Chase (NYSE:JPM) reports its earnings later this week.

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