Alcoa hurt by energy cost; sales top estimates though

Posted Apr 7th 2008 5:09PM by Melly Alazraki
Filed under: After the Bell, Earnings Reports, Alcoa Inc (AA)

The day every investor waits for/dreads has finally arrived. Earnings season has just been kicked off as the first of the Dow Industrials, Alcoa Inc. (NYSE: AA), has just reported first-quarter results. This quarter, the results have been anticipated/feared more than usual. With many economists saying the U.S. has likely entered a recession in the first quarter, corporate profits may be next to be hit.

Well, Alcoa alleviated some fears and confirmed others. The aluminum giant posted a first-quarter profit of $303 million, or 37 cents a share, down from $632 million, or 75 cents a share, in the same period a year ago. Alcoa's income from continuing operations was $361 million, or 44 cents a share, 4 cents short of analyst estimates. Alcoa, however, beat on the top line, with revenue of $7.4 billion, better than the $7.2 billion analysts had expected.

The usual suspects were all present. For example, when accounting for the currency impact, Alcoa said profit came to 52 cents a share. In addition, industrial demand was lower while energy costs surged, causing margins to squeeze and profits to be halved. Still, the company pointed out that aluminum prices are at historic highs and demand in Asia is still strong.

As far as Alcoa goes, the results are a vast improvement on its fourth quarter earnings, but the outlook is a mixed bag as long as the dollar is weak, oil prices are high, and the U.S. economy is softening, causing a margin squeeze on the one hand and curbing domestic demand on the other. This despite high aluminum prices.

As far as the economy and what these results could mean to Wall Street and other corporate profits, this report is first of all not surprising, but it isn't as bad as some may have expected.

Alcoa shares finished the day 4% lower at $37.44 ahead of the results and are dropping some 1.5% in after-hours to $36.88, but perhaps it's too early to get a clear indication as to what investors will choose to direct their focus.

Tags: aa, alcoa, earnings, inthenews