Will Alcoa cast a pall on earnings season?

The aluminum giant's earnings, due Monday and expected to be weak, may cause investors to forget about signs of a strengthening economy. JPMorgan Chase and Lennar also report. Worries about Europe and Iran won't go away.

By Charley Blaine Jan 6, 2012 9:49PM
Charley BlaineThe first week of 2012 gave investors a little something to cheer about. The jobs report was better than expected, with the national unemployment rate dropping to 8.5% and nonfarm payrolls rising by some 200,000.

There was good news on manufacturing and decent news on auto sales. The services sector of the economy showed some buoyancy. There was weak news from Europe, and worries about oil prices if Iran were to try to blockade the Strait of Hormuz. Retailers' holiday sales offered some cheer and some jeers.

On the surface, investors seemed to shrug the worries off. The stock market moved higher for the week, but the finish on Friday was disappointing after the jobs report.

The week ahead offers some more potential stumbling blocks: earnings from Alcoa (AA), Lennar (LEN) and JPMorgan Chase (JPM); the Federal Reserve's Beige Book report on the economy; and continued worries from Europe.

The weekly gains weren't bad: The Dow Jones industrials ($INDU) were up 1.2%, with the Standard & Poor's 500 Index ($INX) up 1.6% and the Nasdaq Composite Index ($COMPX) up 2.7%.

Article continues below.
Those were better results than in 2011's opening week, although not as good as the start for 2010, when the Dow rose 1.8%, with the S&P 500 up 2.7% and the Nasdaq up 2.1%.

But fear was a part of the market this past week as well. Gold (-GC) finished the week up 3.2% to $1,616.80 an ounce. Silver (-SI) added 2.8%. Crude oil (-CL) in New York moved up 2.8% to $101.56 a barrel.

The national average price of gasoline moved up 2.5% to $3.352 a gallon, according to AAA's Daily Fuel Gauge Report, leaving motorists to wonder if they'll be smacked around by prices again this year. Iran may well determine the answer.

Every sneeze in Europe was felt in the U.S. markets. The euro fell 1.5% against the dollar during the week. It dropped 3.2% against the dollar in 2011.

Markets for the week



1/6/2012

12/30/2011

% chg.

YTD chg.
Dow Industrials

12,359.92

12,217.56

1.17%

1.17%
S&P 500

1,277.81

1,257.60

1.61%

1.61%
Nasdaq 

2,674.22

2,605.15

2.65%

2.65%
Russell 2000

749.71

740.92

1.19%

1.19%
Crude oil 

$101.56

$98.83

2.76%

2.76%
(per barrel)











U.S. Dollar Index 

81.60

80.52

1.34%

1.34%
10-yr. Treasury

1.96%

1.87%

4.81%

4.81%
Gold

$1,616.80

1,566.80

3.19%

3.19%

Alcoa kicks off earnings season -- for better or worse

Alcoa, one of the 30 Dow stocks since 1959, reports fourth-quarter earnings after Monday's close. They won't be pretty. The question is whether they will be so awful as to depress the entire stock market.

The consensus estimate is for a loss of 2 cents a share on revenue of $5.74 billion, compared with earnings of 28 cents and revenue of $5.65 billion a year ago.

The stock fell 43.8% in 2011, although it jumped 5.9% this week. The company announced Thursday it's permanently shutting down its smelter in Blount County, Tenn., near Knoxville, and facilities elsewhere to reduce its capacity by some 17%. Alcoa started the Tennessee operations in 1919. The smelter has been idle since 2009.

Alcoa's problem is that there is way too much aluminum capacity globally, and it is a high-cost producer of a product whose manufacturing process requires huge amounts of electricity. The metal settled at $2,039 a ton in London trading on Friday, down 25% since May.

It is a considered a bellwether stock because its products are used in cars, planes, construction and other areas. So, a critical question investors will ask isn't so much about prices but about how Alcoa views global demand, especially in Europe and China.

Lennar: Is there life in housing?
Also due in the coming week is homebuilder Lennar with earnings for the fiscal fourth quarter, which ended in November. The important question is how the builder sees demand, especially in troubled markets like Florida, Nevada, Arizona and California.

The company's fiscal-third-quarter earnings slumped 31% as it delivered fewer homes than a year earlier. But orders climbed and Lennar said it expects a profitable fourth quarter. It recently bought 650 finished lots in the Seattle and Portland, Ore., markets.

Analysts expect 4 cents a share in earnings, unchanged from a year ago, on revenue of $909 million, up slightly from a year ago. Revenue for the fiscal year is expected at $3.06 billion. That's down 81% from its peak in 2006.

JPMorgan: Can the colossus deliver?
JPMorgan Chase's results, due before Friday's open, will be watched closely. One of the most profitable banking companies, it has exposure to Europe and Asia.

It has become a huge domestic lender, with big mortgage and credit card businesses.

Investors will be watching its guidance in a regulatory environment that's become much stricter in recent years, causing CEO Jamie Dimon to loudly criticize Federal Reserve Chairman Ben Bernanke, President Obama and others.

The stock fell 22% in 2011 but was up 6.4% this week.

The economy, foreign and domestic
It's a busy week for economic events, although there's nothing as closely watched as Friday's jobs report. Here's a rundown:

Sarkozy and Merkel meet Monday. France’s President Nicolas Sarkozy will meet German Chancellor Angela Merkel in Berlin  for talks likely to center on new rules to enforce budget discipline across the European Union. The leaders are anxious to flesh out a plan agreed at a December summit by all EU members except Britain for a new treaty to forge closer fiscal integration, as Europe battles to stem a sovereign debt crisis in the eurozone. More meetings among the 27 nations will be held later this month.

Consumer credit, due Monday from the Federal Reserve. This is watched as a signal of consumer confidence.

French industrial production, due Tuesday. This should enlighten investors about the health of Europe.

The Federal Reserve's Beige Book report, due Wednesday. This is a narrative look at the domestic economy and may identify some markets where housing is starting to make a comeback.

U.S. retail sales for December, due Thursday from the Commerce Department. Look for small gains, despite all those reports about big Christmas sales.

Initial jobless claims, due Thursday. It's good news if it is below 400,000. But the reports that come during the holidays can be volatile.

Bond auctions in Italy, due Thursday. If they went as badly as France's auction this week, look for markets to react badly.

Interest-rate decisions from the Bank of England and European Central Bank, Thursday before U.S. markets open. These may offer an idea of how both will combat weakening economies in Europe.

University of Michigan Consumer Sentiment Survey for early January, due Friday. This should show some optimism.

Lastly, here's a calendar of when the Dow components and other important stocks will report. It's not complete. Check MSN Money's earnings calendar for more. For the calendar of U.S. economic reports, check here.

4th quarter earnings season








Company

Date

Quarter 

Company

Date

Quarter 
3M

Jan. 26

4

Hewlett-Packard

Feb. 22 

1
Alcoa  

Jan. 9

4

Home Depot

Feb. 21 

4
Amazon.com

late January
4

IBM

Jan. 19

4
American Express

Jan. 19

4

Intel

Jan. 19

4
Apple

Jan. 24 

1

Johnson & Johnson 

Jan. 24 

4
AT&T

Jan. 26

4

JPMorgan Chase

Jan. 13 

4
Bank of America 

Jan. 19

4

Kraft

Feb. 6-8

4
Boeing

Jan. 25 

4

McDonald's

Jan. 24 

4
Caterpillar

Jan. 26

4

Merck

Feb. 2

4
Chevron

Jan. 27

4

Microsoft

Jan. 19 

2
Cisco Systems

Feb. 8 

2

Morgan Stanley

Late January
4
Citigroup

Jan. 17

4

Pfizer

Jan. 21

4
Coca-Cola

Feb. 7

4

Procter & Gamble

Jan. 27 

2
Dell

Feb. 21 

4

Target

Late February4
DuPont    

Jan. 24

4

Travelers Companies 
Jan. 24

4
Exxon Mobil

Jan. 31 

4

United Technologies
Jan. 25 

4
Ford

Late January
4

Verizon 

Jan. 24 

4
General Electric

Jan. 20 

4

Wal-Mart Stores

Feb. 21 

4
General Motors 

late February
4

Walt Disney Co. 

Feb. 7

1
Goldman Sachs

Jan. 18 

4

Wells Fargo

Jan. 17 

4
Google 

Mid-January
4








66Comments
Jan 8, 2012 4:40PM
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I don't know what all the fuss is about Right to Work States. Seems I've always lived in them.

As soon as the boss comes around, I get right to work...
Jan 8, 2012 8:38AM
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Initial jobless claims, due Thursday. It's good news if it is below 400,000. But the reports that come during the holidays can be volatile.

 

Charlie...the holiday reports aren't "volatile"...they're misrepresented due to holiday seasonal part-time jobs, some unemployed workers losing their benefits and dropping off the census or others just giving up looking for a job etc.  Anyone with intelligence knows that government reported numbers are usually made up, manipulated, misrepresented, lies etc. and are done so to benefit certain organizations and to make things appear better than they are.  What would happen if the government came out and revised the unemployment numbers from say 9% or whatever it supposedly is and said after reviewing all the facts the unemployment rate nationally is really closer to 15% and in some cities/towns and amongst certain groups it's even higher? 


 

Jan 8, 2012 9:13PM
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Mr Fat Cat .. what is this a grammar session?  or a BS session?  If you ever listen to politicians, they can't put two words together with out lying about one of them.
Jan 9, 2012 8:56AM
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True statement...

Worries about Europe and Iran wont go away...?

Expect to see these words used, or  slight variations, used  every other day,

over the next year folks...

Jan 7, 2012 4:18PM
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Mirage I agree that Companies such as Alcoa are "harbingers" of an Economy's health, but also believe they have to have orders to increase production...

 

Alcoa has a much larger field of competition then they had 20 years ago..

You compete or you don't play.  We had investments in these type of Companies until 3-4 years ago. Still do have some.

They are cyclical as Active pointed out, along with you, BUT as far as "hoarding", yes for more reasons then one; Some are trying to "buy or outwit" the competition. Others are saving for more "rainy days." And what "I think is maybe a more prevalent and hidden agenda" is to possibly scare their workers in to working more for less'", increasing production at a lower cost.

 

Keeping that in mind, many workers are going back "into the workforce, expecting less."

Less pay,less benefits,longer hours,no pensions,no 401K matches.

When workers get "scared enough...they cave" to connect this to any heavy political motivation or dis-motivation appears only to me as a long drawn out smokescreen.....

Albeit,what better time then during a deep recession.

And if you were to completely deny this; It would only harden my opinion.

Jan 8, 2012 3:28PM
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Fat Cat. I do not see any suggestions from you, all I see is empty rhetoric. Over the last several years the majority of corporate financial reports, with the exception of a few all say the same thing. Their profits are up, but their sales are down. Their profits have gone up as they shed workers, automate lines, outsource contracts, and reduce salaries while at the same time their overall sales continue to go down. Where does it end? From where I come from you cannot expect to continue on this type of downward spiral, and expect to have a strong and vibrant business because you are and will continue to run out of customers as everyone else copies the same corporate protocol. The current philosophy practiced by Wall Street and the corporations is akin to a junkie seeking his short term fix while continuing on down the same long term destructive path. The true bottom line is that it takes decently paid employees to purchase products, and that without decently paid employees and many of them at that, you will continue to see a shrinking pool of consumers. THE Henry Ford said and then did this: Hire as many employees as you can, and pay them as much as you can. Henry Ford became one the richest and most powerful men in the world following this business principle. It is really just basic economic math in a supply and demand economy. There can be no demand if no one can purchase anything other than food.

And as for your adult and mature commie statement. Corporate America sure does not mind moving to communist China, now does it ,while they drape themselves in the flag.

Jan 8, 2012 1:35AM
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Re-TOG .. in Alaska, WE own our railroad .. and most of the time it is paying a dividend back for hauling tourist and heavy freight.  It used to be that you could get the train to stop any where along the track and let you off or on.  High speed rail might work down in America, but WE have to slow down to let the moose get off the railroad track.
Jan 8, 2012 3:19PM
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MR Fat Cat, You would get a lot more credibility in your arguments if you could end them before you insult the whole of your readers. The economy is going to have a lackluster future as long as the consumers have a lackluster future. For years, the goal of business has been to accomplish more profitability with less labor and liability. Increased Unemployment is an inevitable outcome. Those still employed will feel like the merry go round is going to dump them off at any time. Sometimes we are too smart for our own well being and too greedy for a sustainable future. 
Jan 7, 2012 7:47AM
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How many times need one say the market functions on profit making, not all of the other secondary reasons viewed above.

Jan 9, 2012 8:36AM
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How many times need one say the market functions on profit making, not all of the other secondary reasons viewed above.

Jan 7, 2012 10:46PM
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ActiverRIA, where we disagree is that the government SPENDING money has to be removed from the economy, after all where do they get the money?   They can borrow it, thus causing a huge negative growth factor on the economy, they can PRINT it, thus causing a huge tax on savings and thus a negative drag on the economy, or they can raise TAXES, also a huge drain on the economy.   The net effect of government spending is to slam on the brakes on the economy.  This has happened everytime you have had a Keynesian Stimulus attempt.  The economy recovers eventually, but not until the cost of bad government policy has been overcome.

 

Government SPENDING is not the answer, it is the problem.   Using your solution why not confiscate all income and have the government spend the money for us?   Sorry but your solution will cause MORE pain...  AND HAS...

Jan 7, 2012 11:21AM
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Comrade ActiveRIA,  we know you and your man crush on '57 States' already has decided your vote.

 

Simpson - Bowles report ASSUMES a 5-6% growth rate.  When was the last time we saw that?

 

Also Simpson Bowles does not come close to the cuts needed.  The proposal is just to cut 10 Trillion over ten years, which would return us to W level deficits, and then RAISE TAXES to try to cover the shortfall.  Please note it also makes the assumption that there would be ZERO new spending over ten years. 

 

I could support much of S/B.  I could even support the new taxes after 2 years opf the spending reductions.  But, as usual, I suspect the tax increases will show up, and the spending cuts will not.  Past history shows this is the case when dealing with Congress.

 

How about  we pass the balance budget  amendment NOW,  Slash spending 1 Trillion Now, and then raise taxes 50 Billion a year over 10 years?   Lets reverse the process.  Have the spending cuts up front and the democrat tax increases over 10 years...

Jan 7, 2012 11:51AM
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Looks like the Socialist censors on this site are at it again.  Why does the left always feel the need to silience other opinions?   I realize this is CNBC/MSN which is almost as far left as moveon.org, but the constant deleting of dissenting opinions does no one any good. 

Jan 8, 2012 12:28PM
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Absolutely not MirageGuy, and I am also not so stupid to be partisan since both political parties are corrupt and self serving which is something that you can't see. I have been an independent voter my entire 56 years of life, not blinded by BS. I was also pointing out the folly of Pepsi by firing workers, and at the same time wasting money on a loser of a commercial which is my right since I own some Pepsi stock. I also know that you cannot keep going to the well by firing workers to increase profits because at the rate that we are going with automation and downsizing we will soon run out of an adequate consumer base. You can only get so much blood out of a turnip which is what you appear to be intellectually. 
Jan 8, 2012 1:28AM
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Unfortunately much was spent on too many foreign made goods.
Re-TOG .. I agree with you Thumbs up  To many "I Want" trinkets and not enough "I Need" essentials.  If we are going to import, we need to match with export products to balance the trade budget. 
Jan 7, 2012 3:50PM
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If you have never lost money in investing....You've never really had any fun in life.

 

Kinda like jumping to a spring fed mountain lake....Most only do it once, then you learn.

 

My objectivity is diversify as much as possible or that is affordable...

The most unfortunate mistake that many investors make...Not diversifying and lack of research.

Even if they have FAs and Brokers, they should have some knowledge of their investments.

And listen closely when one of these trusted advisors give them advice.

First they have their livelihoods at stake and the ability to make or break their futures.

Never be afraid to seek additional help,research or change brokers if neccessary....

 

Secondly my mantra is to explore a take some risk, even if you are an older investor like myself.

Many times their are better returns on higher risk investments,but you had be prepared to lose also.

I've came to the point in life, that I realize..; It is very difficult to hit a home run, everytime you step to the plate.....Sometimes you just strike out. The "best" have done it many times.

 

Some may have trouble understanding certain methods, BUT

My game plan the last several years, is to get 70-85% winners on an overall cash basis.

That makes us winners every year....Well, accept 2008...But, we still beat most of the "Best."

The sooner most investors get a "game plan" the better off they are in the retirement years of their lives...My only regret or wish, would have been to have started 10 years earlier then I/we did.

And we were able to retire about 10-12 years before most people do.

And you don't have to be a millionaire..... 

Jan 7, 2012 4:32PM
avatar

Guess, maybe I should have read all of Charley's article about Alcoa...Maybe it might(?) have given me more insight....BUT the facts still remain, only a little vaguer?  AND........

 

I still see in Alcoa, as being more susceptible to the global trends, very similiar to what use to be called the American or U.S. steel industry.  

Jan 8, 2012 11:56AM
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And the last time I checked gasoline was 2.76 a gallon without taxes...  If it's $4 by you, you probably live in a Democrat controlled state.  You get what you VOTE for...

 

Remember Obama has a solution.  Go buy a Government Motors electric car.   He wants $5 gasoline to help fund this.  If you voted for Obama, you really cannot complain.

 

Jan 8, 2012 4:07PM
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On Friday, when the gubment came out with their 8.5% unemployment number, the markets essentially said, "hey Obama, you're lying your a$$ off".  

 

The market numbers, as well as many of the commentators who've reflected the same sentiment bear that out.  The number is a manipulated fantasy, and anyone with even a little objective observation will see that.

 

The kool-aid drinkers, on the other hand, will cheer as if there is no tomorrow.   But even they know it's a lie.   They just don't care that it's a lie, since that would interfere with their agenda.

 

Jan 8, 2012 3:40PM
avatar
Fat Cat. Now how about less regulations, so we can end up like communist China which is the most polluted, toxic nation on Earth. Yeah, just what we want for our children and grand children. Right.
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