After the market closes today, earnings season unofficially begins with Alcoa (AA) reporting its first quarter results. The former bellwether does not quite have the clout it used to have, but still many investors still look to its comments as a gauge for other companies. Alcoa has greatly underperformed the broad market over the past three months, and earnings releases have been less than stellar as well. Alcoa has beat the Street's estimates only once over the past four quarters, and has missed expectations in 9 of the past 14 quarters.
CEO Klaus Kleinfeld has said all the right things during his conference calls, but still the stock has struggled as investors can see the underlying weakness to the Company's operations. Pricing is a problem, and with little clarity on that issue during the past few quarters I am not expecting a bombshell on the call that the Company will all of a sudden have more pricing power. Cash flow and the health of the balance sheet is another issue that we have been watching. There are quarters when it seems that the "all-clear" has been sounded, but then again there are quarters that seem to have Alcoa back on the brink of financial ruin. I do not think we are going to see a dire quarter this time around, but I will be surprised if Alcoa is able to beat the Street's estimate of a loss of $0.04 per share. Revenues are likely to come in above expectations, but costs were not contained as well as they could have been.
Just last week, Alcoa announced plans to curb alumina output by 390,000 metric tons for 2012. Alumina is a key ingredient to make aluminum. The stock is up 10% year to date, but over the past twelve months, the stock is down a whopping 47%. Alcoa has lost its mojo, plain and simple, as well as its bellwether status; however, that won't prevent many analysts from trying to connect the dots to other industries following the release.
Alcoa is a company in trouble. I have modeled for a loss of $0.06 per share on revenue of $5.81 billion. Despite having higher revenues, Alcoa's earnings are going to be pressured by higher costs that will prevent the Company from beating the Street's expectations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.