U.S. Markets closed

Alcoa expected to post flat 2Q adjusted profit

NEW YORK (AP) -- Against the backdrop of a slowly improving economy, Alcoa Inc. will unofficially open another earnings season when it reports second-quarter results Monday after the markets close.

Analysts expect the aluminum manufacturer to report second-quarter earnings per share — after items such as the cost of closing smelters — to be flat and revenue to be lower than a year ago.

WHAT TO WATCH FOR: A tepid global economy and oversupply have weakened prices for aluminum and weighed on Alcoa's results. The company, however, has been helped by stronger demand for aluminum in cars and planes. Analysts will want to hear about changes in either sector.

Aluminum prices fell about 10 percent from the start of the quarter in April to the end of June. The company has responded by pulling down capacity.

In May, Alcoa announced that it was reviewing facilities that accounted for 460,000 metric tons of smelting capacity, or about 11 percent of the company's total. Since then, Alcoa has announced that it will close two lines at a smelter in Canada and shut down an idled smelter in Italy, reducing capacity by nearly 150,000 tons.

Citi analyst Brian Yu said this week that the earnings discussion could hit on several themes including progress on reducing capacity and the aluminum supply and demand outlook.

Demand has been strong in a few industries including automobile and airplane manufacturing. Auto sales from January through June exceeded 7.8 million vehicles, the car industry's best first half since 2007, according to firms that track the sales. Boeing and Airbus are increasing production to handle huge backlogs of orders from airlines that want new, more fuel-efficient planes.

Stifel analyst Paul Massoud said that Alcoa's results will continue to rely on "downstream" operations such as the sale of rolled aluminum sheets and engineered products such as castings and fasteners.

Massoud and Yu both lowered their expectations this week for Alcoa's second-quarter earnings because of low aluminum prices; Massoud to 5 cents per share from 16 cents, and Yu to 7 cents per share from 8 cents.

WHY IT MATTERS: Alcoa makes aluminum products used in many consumer goods, making it an economic bellwether. Its place in line as the first member of the Dow Jones industrial average to report results adds to interest in the company's results. Analysts parse the results for hints about other companies that will report earnings later.

As earnings season approached, companies have lowered expectations and analysts have followed suit. Analysts expect companies in the Standard & Poor's 500 index to post earnings 3 percent above the same quarter in 2012. That's down from a 7 percent increase that the analysts were expecting when the quarter started, according to S&P Capital IQ.

The lowered expectations, of course, make it easier for companies to look smart by beating Wall Street forecasts.

Morgan Stanley analyst Adam Parker said that announcements ahead of earnings have mostly indicated lower earnings but the "vast majority" of companies that have reported earnings since late May have met or beat expectations.

"We expect earning releases to, on net, again exceed consensus expectations," he wrote in a note to clients.

WHAT'S EXPECTED: Analysts expect Alcoa to report earnings of 6 cents per share, excluding items such as restructuring costs. Revenue is expected to be $5.85 billion, according to a survey by FactSet.

LAST YEAR'S QUARTER: Alcoa posted a loss of $2 million, or break-even per share. It would have earned 6 cents per share excluding special items. Revenue was $5.96 billion.