Alcoa will start a tricky earnings season

With the global economy struggling, Wall Street doesn't expect much from first-quarter results.

By Charley Blaine Apr 8, 2013 7:25AM
Stock market © Digital Vision/SuperStockAt a minute or so after 4 p.m. ET Monday, aluminum giant Alcoa (AA) is expected to report 8 cents a share in first-quarter earnings, down from 10 cents a year ago, and a 2% decline in revenue to $5.89 billion.

With that, the first-quarter earnings season will be on. And the arguing will erupt: Will the earnings be any good, or will corporate results suggest that the U.S. and global economies are falling back? If earnings are disappointing, will the causes be domestic or concentrated in, say, Europe or Asia?

How will Japan's bid to reflate its economy by driving the yen sharply lower affect markets in China, Europe and the U.S.?

If the earnings don't impress, stocks may continue to slip after hitting post-crash highs at the end of March. The Dow Jones industrials ($INDU) fell a very modest 0.9% last week. The Standard & Poor's 500 Index ($INX) was off 1%, while the Nasdaq Composite Index ($COMPX) dropped nearly 2%.

The fact is, most analysts don't expect much from first-quarter results or from the second quarter. The global economy has been weak, especially in Europe. China is always a mystery. Federal spending cuts may prove a larger-than-expected drag on the domestic economy.
And North Korea's saber-rattling is a big worry.

Thomson Reuters says stock analysts overall expect first-quarter profits to rise 1.5% from a year ago. That's all. And estimates have been coming down. The overall first-quarter earnings growth estimate was 8.5% on July 1.

Energy, health care and technology earnings may well decline, according to Thomson Reuters. Energy profits will be pressured by falling crude oil prices. Crude (-CL) in New York finished at $92.70 a barrel, down 4.7% last week, although it's up 5.9% for the year.

But one can't write off all earnings. Banks and financial companies are expected to to show 11% growth in the first quarter. Consumer discretionary and telecom earnings should grow 7.8% and 5.7%.
Alcoa is an industrial stock, a group whose earnings are expected to fall 1.8% this quarter. The problem the company faces is global, but it really starts with the Europe Union, especially its southern countries. Globally, demand is falling, and the European auto industry is deeply troubled.

But two key markets for aluminum -- U.S. car sales and commercial airplanes -- have shown renewed life. Alcoa would benefit if the construction industry perked up. Building permits so far this year are up 25% from a year ago, and there are hopes permits might top 1 million units in 2013 for the first time since 2007.

Metals producers -- whether in China, France or the U.S. -- can't shut facilities down fast enough. Alcoa shares have dropped 5.1% this year, after ending flat in 2012 and falling nearly 44% in 2011 and basically breaking even in 2012. U.S. Steel (X) is off 27.5% this year, but it hit its 2013 high on Jan. 2 and is down 33.3% since.
Not many companies report in the first week of any quarterly earnings season. The big report 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.

A key earnings report comes on April 23 when Apple (AAPL) releases its fiscal-second-quarter results. The stock is off 20.4% this year and 40% since peaking in mid-September. The argument is that Apple has run out of ideas or is losing ground to Samsung.

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 is the publisher of MSN Money.)

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

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Apr 8, 2013 10:04AM

Ahhhh.......The 10,000th. comment..

What a fitting place to do it.....An article from One of the stalwart writers on MSN.

I believe you might have been writing here, when I came on here a few years back; After I had retired and started taking over my own investing. MSNBC and two-three other sites were of use to my research...Juback, Brush, Fleckenstien and a couple others always had interesting articles and different viewpoints, of/or investing in Wall St. or Commodities.. 

I found it useful to come here for quick information, charts, S/S, watchlists and analysts projections.

It was in a time frame early to mid 2000s and I used a different name or handle..Left after 2-3 years.

Quit commenting, But still used the watchlist and Stock Scouter ratings.

Thanks to all of you and many commentors...It is as always, a learning experience, and will remain a useful tool....Because I will still be reading; And maybe leave an occassional comment...?


Such as today....Wondering how the Markets will react, when they digest the harbinger of Alcoa (AA)

will proceed after the bell, to show a drop in profits or earnings of 2 cents....When maybe it is nothing more then a slow down in orders over the winter ? Their projection or future guidance would be probably more telling if they reiterate any cutback in production over the next few months...

Waiting to see, and of course other earnings over the next few weeks.....Thanks again.

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