What Should Investors Expect From Alcoa This Earnings Season?

Alcoa (NYSE:AA) will report earnings on Monday after the markets close, ceremoniously kicking off the first-quarter earnings season. The world’s third-largest producer of aluminum and Dow Jones Industrial Average component is expected to report earnings of $0.08 per share on revenue of $5.89 billion.

Here’s a quick look at how the company has performed over the past few quarters.

Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013*
Revenue ($) in millions 6,015 5,971 5,817 5,879 5,890
Diluted EPS ($) 0.09 0.00 (0.13) 0.21 0.08

*Average analyst estimate

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The company has clearly seen better days. Overall revenue declined 5.5 percent in 2012 to $23.7 billion, while earnings declined 68 percent to $0.18 per share. Alcoa stock is down about 9.5 percent over the past three months while the Dow set new record highs. Despite weak expectations, the stock edged fractionally higher in morning trading on Monday, even as the Dow pared pre-market gains.

Alcoa Inc. Common Stock Stock Chart - AA Interactive Chart - Yahoo! Finance

With earnings seasons comes the perennial discussion on which companies can be used as market bellwethers. Alcoa’s earnings have been used as a predictive metric for years, given its status as an aluminum giant and the fact that it is the first Dow component to report. However, the relationship between its real and expected earnings and the following earnings seasons was always largely circumstantial, and has recently begun to fall apart.

“Since 2009, Alcoa has reported earnings above the mean EPS estimate 56 percent of the time (9 out of 16 quarters). In the nine quarters that Alcoa reported actual EPS above the mean EPS estimate, 73.6 percent of companies in the S&P 500 reported earnings above EPS estimates for the quarter on average. In the seven quarters that Alcoa reported actual EPS below the mean EPS estimate, 72.6 percent of companies in the S&P 500 reported actual EPS above the mean EPS estimate for the quarter on average,” reads a report from FactSet, published on Friday.

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“While there is a slight difference in the numbers, 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,” the report added.

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