Alcoa shares slip despite earnings beat

Revenue falls short of analyst estimates as the first-quarter earnings season starts up. Pricing pressures are a concern, despite buoyant aerospace & automotive markets.

By Charley Blaine Apr 8, 2013 6:25PM
There's lots of worry that the first-quarter earnings season will be mediocre. Aluminum giant Alcoa's (AA) first-quarter results did little to suggest otherwise.

The company reported better-than-expected earnings per shares in the quarter, but revenue fell more than expected. The company's shares were down 11 cents, or 1.3%, to $8.28 after hours.

Alcoa is the first component in the Dow Jones Industrial Average ($INDU) to report first-quarter results, and its results are traditionally labeled as the beginning of each quarter's earnings season.
The problem for Alcoa continues to be that prices for alumina, the raw materials that's refined into aluminum -- and aluminum itself continued to be plagued by a global supply glut. But Alcoa said that massive cost-cutting pushed its alumina and primary metals operations into the black.

At the same time, its end markets -- for product used by aerospace companies, automotive manufacturers and construction -- are decently profitable and showing decent growth. Aerospace demand fueled demand for engineered and flat-rolled products. But there are still intense price pressures. © Stephen Morton/Bloomberg via Getty Images

Alcoa's results are closely watched as a barometer for the economy. By that measure, it suggests a weak economy. At the same time, the stock market's reaction to the results rarely much effect to how the market performs as earnings season progresses.

The best barometer, as Paul Hickey of Bespoke Investment Group told CNBC late Monday, is IBM (IBM). If IBM results beat Street estimates, the market will move higher 80% of the time.

IBM will report first-quarter results on April 18. Analysts expect the company to report $3.05 a share in earnings, up from $2.78 a year ago. Revenue is expected to rise slightly to $24.69 billion.

Alcoa's results came on a day when stocks were mostly lower until 1:30 p.m., when new buying started.

The Dow closed up 48 points to 14,613. The Standard & Poor's 500 Index ($INX) added 10 points to 1,563, and the Nasdaq Composite Index ($COMPX) rose 18 points to 3,222.

The gains put the Dow within 50 points of its all-time closing high of 14,662, set on April 2. The S&P 500 is about 7 points below its all-time closing high of 1,570.25, also set on April 2.

After the close, J.C. Penney (JCP) said embattled CEO Ron Johnson was leaving the company, replaced by the man he succeeded,  Myron Ullman. Johnson's ambitious program to revamp the chain and add new merchandise new lines and didn't work. Sales in the fiscal year ended Feb. 2 fell 25%. The shares are off more than 20% this year alone.

Investors weren't thrilled with Ullman's return. Shares were down 5.4% after hours at $15.87 in wildly volatile trading. After rising to as high as $17.88, they fell to as low as $14.10.

This is a modest week for earnings. The biggest report of the week will come Friday when JPMorgan Chase (JPM) is expected to show $1.39 a share in earnings per share, up from $1.19 a year ago. Revenue should hit $25.94 billion, but that will be down 5.4% from a year ago.

The banking giant has been struggling after the London operation of its chief investment office managed to lose more than $6 billion in trading in 2012. Post-mortems of how the loss built up indicated no one wanted to take responsibility.

JPMorgan Chase shares were up 67 cents to $48.58 on Monday. Shares are up 10.5% this year, compared with 11.5% for the Dow and 9.6% for the S&P 500.

A key earnings report comes on April 23 when Apple (AAPL) releases its fiscal-second-quarter results. The stock is off 19.9% this year and 39.6% since peaking in mid-September. The argument is that Apple has run out of ideas or is losing ground to Samsung.

Apple was up $3.01 to $426.21.

Also reporting this week are a number of bellwether retailers, including: Pep Boys – Manny Moe and Jack (PBY) on Tuesday, and Bed Bath & Beyond (BBBY), Family Dollar Stores (FDO) and Ruby Tuesday (RT) on Wednesday.

The volume of reports pick up after this week. In the week of April 15, Citigroup (C), Goldman Sachs (GS), IBM (IBM), Google (GOOG) and Microsoft (MSFT) release results (Microsoft owns and publishes Top Stocks, an MSN Money site).

The week following brings reports from Apple, Alaska Air (ALK), Halliburton (HAL), Exxon Mobil (XOM) and 3M (MMM).

More on Top Stocks
Apr 8, 2013 7:19PM
"But Alcoa said that massive cost-cutting pushed its alumina and primary metals operations into the black"

48th verse, same as the first.  Revenues are down, profits are up.  Can't penny-pinch your way to profits forever.  Sooner or later, demand has to take over.  Increase sales and grow, or die.  Unfortunately, nothing has been done to actually create sustainable demand - QE1 didn't do it, the stimulus didn't do it, QE2 didn't do it, mortgage mod programs didn't do it, QE3 didn't do it, cash for clunkers didn't do it, student loan takeover didn't do it, TARP didn't do it, Obamacare didn't do it, and QE4 isn't doing it..........           No soup for you!  NEXT!!!!
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