Q1 2011 Earnings Call

April 11, 2011 5:00 pm ET

Executives

Roy Harvey - Director of Investor Relations

Klaus Kleinfeld - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Chairman of International Committee

Charles McLane - Chief Financial Officer and Executive Vice President

Analysts

Anthony Rizzuto - Dahlman Rose & Company, LLC

John Redstone - Desjardins Securities Inc.

Paretosh Misra

David Gagliano - Crédit Suisse AG

Brian Yu - Citigroup Inc

Sal Tharani - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Alcoa, Inc. Earnings Conference Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions] I would now like to turn the call over to Mr. Roy Harvey, Director of Investor Relations. Please proceed, sir.

Roy Harvey

Thank you, Melanie. Good afternoon, and welcome to Alcoa's First Quarter 2011 Earnings Conference Call.

By Mark Vickery

Alcoa Inc. (AA) has kicked off another earnings season with its first quarter posting of 27 cents earnings per share (EPS) on revenues of $5.96 billion. This met the Zacks Consensus Estimate on the EPS side, but was down slightly from the $6.112 billion expected on the revenue side.

Shares of Alcoa, the U.S.'s top producer of aluminum, had ticked down 0.84% in regular Monday trading by 15 cents per share to close at $17.77 before the company posted its earnings numbers. Since the earnings have been released, after-market trading for Alcoa went back up a few cents before dropping roughly 3%.

Analysts had been revising their first quarter estimates higher for Alcoa over the course of the past 90 days. This clearly reflected the recent increases in the price of aluminum, which arrived a bit late to the party compared to the gains in several other

Q2 2011 Earnings Call

April 11, 2011 9:00 am ET

Executives

Jeffrey Merrifield - Senior Vice President of Power Group

Brian Ferraioli - Chief Financial Officer and Executive Vice President

J. Bernhard - Founder, Chairman of the Board, Chief Executive Officer, President and Member of Executive Committee

Analysts

Scott Levine - JP Morgan Chase & Co

Jeff Sprague - Citigroup

Don Hamilton

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Andy Kaplowitz - Barclays Capital

Joseph Ritchie - Goldman Sachs Group Inc.

Jamie Cook - Crédit Suisse AG

Steven Fisher - UBS Investment Bank

Presentation

J. Bernhard

Before we begin, need to read this: Forward-looking statement, right, Gentry? Everybody, read this real good, okay? All right. Thanks for being here today and we will begin today what we will begin today, and today I have Jeffrey Merrifield, Senior Vice President; and Brian [Ferraioli] our CFO, everybody

Fastenal Co. (FAST) announced that it would release its results for the first quarter of fiscal 2011 before the market opens on April 12, 2011. Winona-based Fastenal earned a profit of 44 cents in the fourth quarter, marginally behind the Zacks Consensus Estimate of 45 cents.

In the upcoming quarter, the Zacks Consensus Estimate for Fastenal is pegged at a profit of 51 cents per share, reflecting an annualized growth of 35%. The upside potential of the estimate, essentially a proxy for future earnings surprises, is just 2%.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 5.4%, with a negative surprise only in the last quarter.

Fourth Quarter Review

Fastenal recorded a profit of $65.1 million during the fourth quarter of 2010, up 46.3% from $44.5 million in the year-ago quarter. Consequently,

U.S. Steel (X) can significantly raise its value by focusing on profit margin improvement for its U.S. flat-rolled steel division. U.S. Steel is currently the tenth largest steel producer in the world, with an annual raw steel production capability of nearly 32 million tons. The company competes with international steel giants like ArcelorMittal (MT), BaoSteel, Posco (PKX), Nippon Steel (NISTY.PK) and ThyssenKrupp (TYEKF.PK).

We maintain a price estimate of $60.17 for U.S. Steel’s stock, a premium of about 15% to its current market price.

U.S. Flat-Rolled Steel is the Company’s Largest Source of Value …

U.S. Steel’s flat-rolled steel division contributes almost 42% to our estimated stock value for the company. This division represents the company’s sale of flat rolled steel to its customers in the United States, which includes steel plate products used for ship building, construction, large diameter welded pipes and boiler applications, as well as strip products

Cliffs Natural Resources (NYSE:CLF) has been able to leverage its position as the largest producer of iron ore pellets in North America to forge long-standing relationships with some of the largest steel manufacturers in the world. Cliffs’ biggest customers are ArcelorMittal (NYSE:MT), Algoma and Severstal – each of which individually accounts for more than 10% of Cliffs’ total revenues in the last 3 years. While this is no doubt a strength for Cliffs, it also exposes the company to some concentration risks should any of these companies break off their relationships with Cliffs in the future. Cliffs competes with other international mining and natural resources companies like Vale (NYSE:VALE), BHP Billiton (NYSE:BBL) and the Rio Tinto group. We maintain a $103 price estimate for Cliffs Natural Resources stock, roughly 8% ahead of market price.

The Benefits to Cliff’s Relationships

Cliffs has multi-year supply agreements with almost all customers of its

Over the last two years, the price of copper has skyrocketed on the assumption that demand will outpace supply of the industrial metal; however, recent warning signs indicate that copper’s uptrend could come to an end.

According to Carolyn Cui and Tatyana Shumsky of The Wall Street Journal, the rise in copper prices has primarily been driven by the belief that China has an insatiable appetite for the metal. This may be true to some extent, as China’s consumption of the metal more than doubled in 2008 and 2009 as the emerging market witnessed exceptional economic growth and urbanization prevailed. Further price appreciation was supported by the fact that China’s demand increased while global mine production remained relatively stable growing at nearly 19% between 2000 and 2009 (keeping pace with global consumption).

Although China’s demand for copper is likely to continue due to its economy’s size and growth in industrial

As investors following the fertilizer space likely already know, Cargill has begun the process of spinning out its ownership of Mosaic (MOS) in order to minimize tax implications and settle the estate of a recently deceased heir. The transaction will bring the roughly 286 million shares of Mosaic owned by Cargill into the public markets, in separate transactions over the next two years. A detailed explanation of the transaction outlined by Mosaic can be viewed here.

The Special Meeting to approve the transaction has been set for May 11, and the initial offering of shares is set to occur within 60 days of approval, so likely sometime between May 11 and the middle of July. The transaction is not dilutive, so it will not change the EPS Mosaic reports, nor will it raise any money for Mosaic. However, the transaction has raised the possibilities of two positive catalysts for shares:

Universal Forest Products Inc. (UFPI) is slated to release its financial results for the first quarter of the fiscal year 2011 on Wednesday, April 13. The current Zacks Consensus Estimate for earnings per share (EPS) is one cent, which represents a negative annualized growth of 87.50%.

With respect to earnings surprises, over the trailing four quarters, Universal Forest lagged behind the Zacks Consensus Estimate in three quarters, while outperforming only in one quarter. The average earnings surprise was a negative 24.09%, implying that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter Highlights

Universal Forest reported disappointing results for the fourth quarter of 2010 with its net income falling despite a healthy top-line growth. Earnings per share in the quarter were a loss of 12 cents as compared with a loss of 3 cents in the year-ago quarter. Earnings per share

Alcoa (AA) gets a lot of hype as the quasi-official starter of earnings season, and with the company due with its Q1 results in tonight's after-hours session it's worth taking a step back to note longs don't get much benefit from the buildup. In fact, AA is a short favorite when it comes to adding to downside momentum in the wake of its earnings-driven after-hours declines.

AA has a strong tendency to add to its earnings-driven after-hours decline in next-day regular session action. AA has recorded an after-hours decline in 14 of the last 28 quarters we've tracked, and 10 times, or 71% of the time, that decline has widened for deeper losses by the following day's regular session close.

On the upside, AA has seen an earnings-driven after-hours gain in 14 of the 28 quarters we've tracked over the last seven years. In 10 of those quarters, 71% of

TMS International (TMS) is scheduling a $200 million IPO with a market capitalization of $554 million at the price range mid-point of $16, for Thursday, April 14, 2011. The mfull IPO Calendar lists seven other IPOs for this week.

CONCLUSION -- TMS is an overpriced leveraged buyout bailout, with 50% of its IPO proceeds going to selling shareholders.

For the December 2010 fiscal year, TMS earned $7 million and paid $40 million in interest expenses. TMS only made a profit in the three most recent quarters. Revenue and EBITDA trended down for both the Sept. and Dec. quarters.

TMS’s P/E ratio for the trailing 12 months is 79, the P/E ratio annualizing the December quarter is 55. Comparing valuation ratios for SMS, mentioned in the S-1 filing as a competitor: TMS's price to book value is twice that of SMS. Annualizing the December quarter P/E ratios TIM's is 55, SMS's

STAG Industrial (proposed ticker: STIR) is scheduling a $220 million IPO with a market capitalization of $346 million at the price range mid-point of $16 for Friday, April 15 2011. STIR is based in Boston, MA. Full IPO Calendar lists 7 other IPOs for this week

Conclusion -- Other REITs that have equivalent or better payouts from available cash. A red flag is raised because current values are not available and because distributions are only 94% covered for the year ending December 31, 2011.

Summary-- STIR is an upreit. An upreit is formed by combining properties from existing Limited Partnerships. In the case of STIR, assets are accounted for on a carryover book basis, rather than at market value. Ratios for price-to-book value and price-to-tangible book value are therefore meaningless.

The estimated distribution at the mid-range price point of $16 for the first year is 6.4%, but only 94% of

In a previous article, I discussed the reasons behind the emerging iron ore bull market and the stocks that one could invest in to benefit from this macro trend. With iron ore trading at around $184 a ton, (a mid-point price of Platts 62% IODEX on 4/8/2011), more and more investors everyday are gaining an interest in this base metal.

As this interest increases, the market is beginning to see quite a few new mining companies spring up. For instance earlier this month we saw a Canadian IPO for an iron ore company in the Ukraine called Black Iron. Additionally, some iron ore firms are starting to attempt to develop deposits in relatively remote areas like Zone Resources (ZRESF.PK) in Northern Canada. This article will look at some of the more technical aspects that an investor should consider when conducting their diligence on a firm in the iron ore sector.

VSE Corporation (VSEC) is a government contractor, primarily in the defense arena. They have little debt and generate good free cash flow. The current debt they have relates to the acquisition of Akimeka (see below) and should be paid off in 3 years. They financed $11M of the $33M purchase price. They have used that cash to make acquisitions. In the past few years, those acquisitions included ICRC, an infrastructure contractor, G & B, a female-owned IT contractor with services to the Social Security Administration among others, and Akimeka, IT services to the Military Health System, primarily.

This analysis primarily comes from VSE’s filed 10-K .

As war operations in Iraq and Afghanistan have wound down, VSE’s revenue (and stock price) has dropped correspondingly. The market may have overreacted. Currently, the market is pricing in net income declines. Stable net income (0% growth) values VSE at $45.60 at a 10% discount

German industrial conglomerate Siemens ADR (SI) has seen its stock price more than double in less than two years. But its CEO, Peter Loscher, still wants more, recently announcing one of the most sweeping revamps in the company's 164-year history.

• First, he plans to sell shares of Siemens' Osram lighting unit through an IPO this year. That should generate more than $7 billion.
• Then he intends to create a fourth division to coexist with the company's current healthcare, energy and industrial focuses. The latter, which made $49 billion in sales last year, will be split into two divisions.
• Everything to do with power distribution and transportation equipment will become a new "Infrastructure and Cities" division. And the same goes for its building technology operations, which produce building automation, fire safety and security equipment.

The new arm will employ 81,000 people and generate approximately $23 billion in revenue. It will focus

By Jack Barnes

You could have just banked 123% gains on cotton.

That's what Money Morning readers are sitting on right now.

A few months ago, I told our readers to buy cotton. And if they bought when I advised, they already more than doubled their original investment.

When I recommended cotton, it was trading at roughly a dollar a pound - after a run-up from 45 cents, where cotton traded for the last decade.

I told readers that cotton prices could hit $1.25 a pound in the six months.

As it turns out, cotton prices were in an unprecedented bull market. And my estimates were conservative, very conservative.

Just one year ago, cotton was trading at 70 cents a pound. As I write this, it's trading at roughly $2 a pound.

Readers who bought in when I originally recommended cotton have more than doubled their money. In fact, the

As we approach the one-month anniversary of one of the worst natural disasters in modern times, Japan is slowly turning its efforts to the daunting task of rebuilding hundreds of kilometers of devastated coastal towns and public infrastructure.

The Herculean effort will cost more than $300 billion by some estimates. That number could jump even higher depending on what happens with the Fukushima Dai-ichi nuclear power plant. The world is on watch, and so are investors. Several industries stand poised to make big gains as they assist in the reconstruction of northern Japan.

There’s no question that Canada will be one of the big benefactors of the rebuilding effort. Its struggling lumber industry will be the primary supplier of the dimensional lumber needed to reconstruct homes and other structures destroyed by the tsunami.

With an estimated 260,000 people still homeless, and countless numbers of businesses either damaged or totally destroyed,