Earnings Preview: Alcoa

Alcoa (AA) is expected to report Q3 earnings after market close Tuesday, October 7,  with a conference call scheduled for 5:00 p.m. ET.

Guidance

The consensus estimate is 54c for EPS and $7.23B for revenue, according to First Call. Alcoa's report will "officially" kick off earnings season. It is the first blue-chip company to post Q3 results amid tough times for the aluminum industry, which is experiencing falling prices and increased competition for a shrinking market.

Analyst Views

On Oct. 6, Friedman Billings adjusted its Q3 estimates lower for the aluminum stocks to reflect actual commodity prices. In addition, the firm has lowered Q4 aluminum price assumptions. Friedman believes Alcoa will report disappointing results and outlook due to weak demand, escalating costs, and seasonal slowdown in its downstream operations. While the company's realized aluminum prices, with a lag effect, might be higher than quarterly average LME prices, Friedman believes that the company might also experience cost escalations. During the quarter, Friedman expects that higher input costs and utility disruptions in Western Australia and the Rockdale smelter are likely to offset any efficiency gain in Iceland and operational improvements in Russia.

On the conference call, Wall Street will pay the most attention to what the company has to say about the general economic environment.

Comments

[User 265729:]

This is a real tough call to make... This industry is really at the mercy of energy prices as the economy improves. Alcoa aside, I think one of the largest plants in the world, located in Bahrain, has been under increasing pressure...

I don't have a position on AA, but it may be worth adding to a portfolio when we reach the bottom of the abyss.

2008 Oct 07 02:09 PM

[svosavvy:]

I agree, hard to tell. I wonder where the bottom of the swamp is? I guess thats the $700 bil question. I wonder if people will cut this thing some slack even if alcoa comes in pretty weak on earnings. These companies are getting slammed as if they didn't earn a penny. Took a small position on the thought that non terrible news might ease things a bit. If they report awful I wouldn't be surprised to see the swamp get a whole lot deeper. Cash flow is more important than ever.

2008 Oct 07 03:13 PM

[svosavvy:]

time to get that ugly stick back out and get to work on this one.

2008 Oct 07 04:29 PM

[Urbane Gori...:]

I was just on the Scientific American website .. They had an interesting video "World's deepest living fish caught on film"... These fish live 5 miles under the sea! Remarkable! The pressure on these fish is comparable to (according to the video) having 111 Elephants standing on a Mini Cooper!

I'm beginning to think that I'll join these sociable fish and bottom-pick only when they do..

jegan

2008 Oct 07 05:03 PM

[svosavvy:]

that's a great plan, except, I doubt they will drop you a memo as to when they'll go up. Make mine a tall glass of dollar cost averaging.

2008 Oct 07 07:14 PM