Tuesday, July 12, 2011

Alcoa 2Q11 Earnings Release

On July 11th, Alcoa reported 2Q11 Income from Continuing Operations of $0.32/share, excluding $.04/share in restructuring and debt tender offer costs. Analysts were expecting a consensus of $.33/share and we were modeling $.34/share. Although AA missed estimates, they still came in with strong Y/Y and sequential trends despite rising costs due to energy and raw materials, as well as a negative currency impact. Revenues of $6.6B represent a 27% Y/Y jump and an 11% jump from 1Q11. AA states the sequential increase in income was driven by higher revenues, higher alumina shipments, and price realization for both aluminum and alumina.

AA was especially pleased with their performance in the Alumina segment, which reported ATOI of $186M, 31% higher than 1Q11. This is mainly due to a 7% improvement in realized alumina price increases. AA is a world leader in the production and sale of alumina, which is becoming a more relevant commodity.

On Monday, AA was trading down 2.87% prior to the release of the earnings and continued to decline in after-hours trading. As seen in the past, Alcoa tends to be a short favorite around earnings time. In 15 of the last 29 quarters, AA has traded down after hours and continued to decline the following day 73% of the time. In this situation, AA followed suit and finished down 1.26% on Tuesday.

CEO Klaus Kleinfeld was pleased with the company’s results and despite sporadic economic recovery, he remains bullish on the outlook for Alcoa and the aluminum industry as a whole. In the earnings release, he reiterated his belief that global demand for aluminum will increase 12% by 2012 and will more than double by 2020. The feeling was mixed around analysts, with many decreasing their outlook for AA in the next two years. The general feeling being that the rising costs of input are going to be hard to overcome throughout the rest of 2011 and in 2012, despite growing demand.

-Jeremy Pellizzari

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