Alcoa Is Hard to Believe In

Alcoa (AA) was first out of the chute launching earnings season. (Call Transcript) Of course, the company lost a lot of money which was to be expected. Revenues are off as most clients are in trouble. Commodity prices are down dramatically so margins are not looking good. Management would have you believe that they are well positioned for the future. They say they are well capitalized, liquid and well positioned for the future.

Take a look at a few points that were not discussed in the earnings release.
1. Under short term liabilities the fair value of derivatives contracts practically doubled from $286 million to $461 million. You clearly need more explanation on that line item.
2. Short term borrowings are down but reliance on commercial paper has doubled to $1,535 million. Commercial paper that’s a stable source these days.
3. Long term debt has increased by $2.1 Billion or 33% to an astronomical $8.5 Billion.

I'm not saying that Alcoa is the next financial funeral but the company cannot take a lot of financial pain without starting to blow some gaskets.

Comments

[mbabigd:]

Given Alcoa's current financial state, are they a more or less attractive acquisition target than they were this time last year? Yes, the stock price has dropped dramatically, but personally, in my mind their ballooning long-term debt is a major impediment that potential suitors are having trouble coming to terms with - thoughts?

Jan 13 12:51 PM