Alcoa Inc.'s 2Q results expected to fall

Analysts expect Alcoa's 2Q earnings to fall on weaker prices, inventory glut, economic worries

Associated Press

NEW YORK (AP) -- Aluminum maker Alcoa Inc. could set the tone for what's expected to be a disappointing earnings season when it announces second-quarter results after the markets close on Monday.

WHAT TO WATCH FOR: Alcoa produces aluminum that it sells to automakers, aerospace companies and other businesses. It is the first company in the Dow Jones industrial average to report earnings, so investors often watch its results for signs of how earnings may unfold for other companies.

The April-through-June quarter was challenging for the aluminum industry. Aluminum prices fell because of oversupply. Demand was weak in the sluggish global economy.

Growth slowed in the U.S. and China, the world's two biggest economies. Some European countries, like Spain and Italy, are slipping into recession and manufacturing has slowed on all three continents.

Alcoa and other manufacturers have cut production since the start of the year, but Chinese companies still churn out huge amounts of aluminum. "That knocks down prices and just tells you that, over the near term, you're going to have more supply than demand," Argus Research analyst Bill Selesky said.

Aluminum prices have fallen about 30 percent from the second quarter of 2011, Morningstar Inc. analyst Bridget Freas said.

There have been pockets of strong demand in the automobile and airplane industries. Analysts say auto sales are still on pace for best year since 2007. Boeing and Airbus are boosting production to meet orders from airlines looking to modernize their fleets and save money on fuel. Aluminum packaging for products like beverages is another area that could show gains.

But those islands of growth probably will be overshadowed by weak demand from the housing industry, a lack of infrastructure projects and less consumer spending on larger goods like appliances.

Alcoa's share price fell nearly 13 percent in the second quarter.

WHY IT MATTERS: Alcoa's performance reflects broader economic trends because aluminum is used to make so many products for businesses and consumers. About three-fourths of Alcoa's sales are in the U.S. and Europe.

WHAT'S EXPECTED: Several analysts recently lowered their earnings estimates for Alcoa, largely because of weak aluminum prices and rising inventories. Analysts surveyed by FactSet forecast earnings of 5 cents per share on revenue of $5.83 billion.

Alcoa has forecast a 7 percent increase in global aluminum demand this year. Some analysts expect the company to trim that forecast when it releases its earnings.

LAST YEAR'S QUARTER: Alcoa's net income was $322 million, or 28 cents a share. Revenue totaled $6.59 billion.

View Comments (0)