Alcoa adds some hope to earnings outlooks

The aluminum giant starts the fourth-quarter earnings season seeing growth in China. US business hopes depend on ending budget fights. Earnings reports ramp up in the next 2 weeks, starting with Wells Fargo. Google, Apple report the week of Jan. 21.

By Charley Blaine Jan 8, 2013 11:31AM
© Kick Images, Photodisc, Getty ImagesUpdated: 6:47 p.m. ET

There was good news in Alcoa's (AA) earnings report late Tuesday, and that may take the edge off those bracing themselves for a weak earnings season.

The numbers were OK. The company said it earned 6 cents a share from continuing operations in the fourth quarter, in line with Wall Street estimates. But the revenue -- $5.9 billion -- was better than the Street estimate of $5.61 billion.

Moreover, CEO Klaus Kleinfeld told CNBC the company boosted its projection for growth in global aluminum demand in 2013 from 2% to 5%. And the stock was up 1% after hours to $9.20.

Alcoa's report probably won't send the market soaring on Wednesday. But it did suggest the global economy may be a bit stronger than thought. If that idea is confirmed through the thousands of earnings reports due in the next eight weeks, perhaps investors will push stocks higher.

Alcoa's quarterly results mark the unofficial start to earnings season, that mad period after every quarter when companies report financial results and discuss what might come next. The fourth-quarter reports get a lot of scrutiny because investors want to know how companies are looking at the first quarter and the year ahead.
The season always starts slowly. Only six members of the Standard & Poor's 500 Index ($INX) will report this week, ending Friday morning with Wells Fargo (WFC). The season gets more active in the week of Jan. 14 and explodes the week of Jan. 21.

Analysts aren't expecting much this quarter, Thomson Reuters says.

A mediocre fourth quarter
Earnings among the 500 companies in the S&P 500 will grow perhaps 2.8% in the fourth quarter. But most of those gains will come from improved results for the financial industry and consumer discretionary companies, especially homebuilders. Worse, the 2.8% growth estimate has been cut substantially of late. It was 9.9% at the end of the third quarter.

What's ahead in 2013 is not as clear perhaps as in years past because of the uncertainty caused by the debt-ceiling fight. Will it result in a governmental shutdown? And, if it does, how long will it last?

Plus, there are other issues that will get close scrutiny. Will the housing recovery expand in 2013? Will Apple (AAPL) results beat the Street's estimates? Will personal computer sales continue to droop? Do consumers have any confidence?

The calendar makes Alcoa visible
Alcoa has often been parsed carefully largely because of when it reports. But it did offer some nuggets Tuesday that should cheer investors. The biggest nuggets, provided by CEO Kleinfeld, included a projection for 8% economic growth in China.

In addition, the company sees strength in its key aerospace and automotive markets, particularly in North America, and a continued rebound in U.S. housing. Europe seems to be stabilizing, Kleinfeld said on Tuesday's earnings call. And that's good news if it continues.

Still, Alcoa faces brutal competition, with countries like China subsidizing domestic producers that would be hemorrhaging cash otherwise. But if you can make high-end products -- turbines, aircraft, auto and truck parts, the backs of smartphones and risers for offshore drilling rigs -- then you have a chance.

If you're lucky. Alcoa hasn't been lucky: The financial crisis and the global recession have forced it to shutter smelters and cut its workforce deeply. Aluminum, priced on the London Metals Exchange, averaged $2,051 a ton in 2012, down 15% from 2011. The manufacturing slowdown that hit the U.S. economy in the latter half of 2012 didn't help.

Moody's has said it may downgrade Alcoa's bonds to junk status.

Still, the price in London appears to have bottomed in August at about $1,800 a ton and has moved up 11% since to $2,004. And demand for high-end products has been stable.

Alcoa shares fell 0.4% in 2012 when the Dow Jones industrials ($INDU) were up 7.3% and the Standard & Poor's 500 Index ($INX) added 13.4%. But the shares are also down 81% from their peak in 2007.

Even Alcoa will admit it gets too much attention.


Reports to watch
Here are the key reports to watch over the next few weeks:

Wells Fargo. Watch to see what the bank has to say about the economy and the debt ceiling crisis. It's clear that it sees a real housing recovery and steady gains in the economy.

Homebuilder Lennar (LEN), due Tuesday. Its shares doubled in price in 2012 as investors started to believe a housing recovery was emerging.

The big banks: JPMorgan Chase (JPM) and Goldman Sachs (GS) report on Wednesday. Bank of America (BAC), Citigroup (C) and Capital One Financial (COF) on Thursday.

Apple reports fiscal-first-quarter results on Jan. 23. This will get the most attention of just about all stocks, if only because it is the most valuable stock in the world. And its shares have fallen more than 25% since peaking in September. Apple's business is now built around the iPhone and the iPad. In the fiscal first quarter a year ago, it sold 37 million iPhones and 15.4 million iPads. It has had trouble getting components to make more devices.

Google
(GOOG) reports on Jan. 22. The stock has been more volatile than Apple's. Microsoft (MSFT) reports on Jan. 24. (Microsoft owns and publishes moneyNOW, an MSN Money site.)

Ford Motor (F) and General Motors (GM) are due at the end of January and early February. They will report that their U.S. businesses are succeeding admirably. The big question is what their money-losing European businesses.

Caterpillar (CAT) is due Jan. 28. Caterpillar is the poster child of U.S. business abroad. No stock was affected as much by the daily worries about the European debt crisis. But Europe's been quiet in recent month. CAT shares are up 19.6% since July.

Wal-Mart Stores (WMT), Target (TGT), Nordstrom (JWN) and Macy's (M) are all due in late February. We care about these retailers because they are the direct beneficiaries of rising consumer confidence and victims when confidence stalls.

Lowe's (LOW) and Home Depot (HD). The home-improvement retailers report on Feb. 25 and Feb. 26, respectively. They should tell us if Americans are investing in their homes.

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