Alcoa (AA) plunges: Earnings season is off to a bad start
Today's Financial News - Posted October 8, 2008
Earnings season is off to a rough start. Alcoa (NYSE:AA) spooked the market with a huge disappointment. What does the rest of the season have in store?
By Andrew Snyder
Baltimore – (TFN): With the year’s third quarter just a week or so in our past, it is time to enter earnings season. Like usual, the first to make the big plunge is Alcoa (NYSE:AA).
The news from the giant aluminum producer was not good. This time last year, Alcoa was soaring as the economy was in high gear and manufacturing remained fairly strong. During the company’s third quarter of 2007, it reported net income of $555 million.
The situation is drastically different this year. Alcoa’s Q3 earnings were nearly slashed in half, down to just $268 million. On a smaller basis, earnings were just $0.33 per share. Analysts were looking for a figure of about $0.50 per share. That figure had already been revised from expectations of over $0.70 in August.
Share price has plunged on the news. The company’s valuation is down 16% and shares are trading for $14. Investors were willing to pay over $40 for those shares in June.
The huge earnings decline is partly due to aluminum prices getting slashed by 25%. Add general overall economic weakness and a strike at a powerful customer, Boeing (NYSE:BA), to the mess and you have a recipe for precipitous declines.
The news of a major earnings plunge at one of the nation’s most renowned manufacturing facilities hurts. But what is even more painful is the company’s decision to slash its capital expenditures.
Alcoa’s budget originally called for $3 billion in capital spending. Now, it will be less than $1.4 billion for the year. It is not good news for an economy that needs every dollar it can get its hands on.
More on the way
Do not think the downturn in Alcoa will be short-lived. This is just the beginning of the slump for the manufacturing giant. With the global economy at a standstill and even shrinking in some cases, aluminum demand (and therefore prices) will plummet.
Alcoa’s earnings announcement is always one of the first during earnings season. There will many other companies with similar stories. More losses are on the way.
The markets are doing a decent job of looking ahead and discounting companies before their announcements. Hopefully, the declines will end soon and we can start moving forward.
Until that happens, keep a close eye on the earnings calendar. As companies surprise the markets, either to the upside or the downside, there will be some excellent buying opportunities. Keep tuned to the markets and invest accordingly.
The best way to do it is to sign up for TFN’s daily emails and stay tuned to the site’s constantly changing array of news articles.
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