by Dan Burrows | July 9, 2014 12:10 pm
Alcoa (AA) earnings kicked off the reporting season in fine fashion, but the industrial bellwether’s results were more exciting for some select stocks than the global economy as a whole.
True, Alcoa earnings could hardly have landed better. Years of cost cuts and a painful transformation into a different kind of company — one that sells more higher margin, finished products — are no doubt paying off.
For the company itself, Alcoa earnings revealed a long-awaited return to profitability — including beating Wall Street estimates by a wide margin.
If nothing else, the Alcoa earnings report underscores the rightness of the company’s new strategic direction.
As for what Alcoa earnings say about the global economy … well, nothing much new there. Growth is sluggish, and tepid demand for aluminum continues to weigh on prices. The business of mining and smelting the stuff hasn’t been good for a long time. That’s what prompted Alcoa’s change in direction in the first place.
Drilling down into the details, however, a number companies have to be extremely happy with the Alcoa earnings report, given what it says about their industries’ prospects.
From truck tires to beer cans, here are three companies applauding the Alcoa earnings report:
In excellent news for Goodyear Tire & Rubber Company (GT), Alcoa hiked its 2014 forecast for the North America commercial transportation market.
Based in part on rising truck orders and backlogs, Alcoa now believes this end market will grow anywhere from 10% to 14% this year, up from its prior estimate of just 5% to 9%.
That kind of acceleration in the North American commercial truck market bodes well for Goodyear, which is a major supplier to the industry.
The market sure appears to have taken notice of the news. GT stock jumped in early Wednesday trading, adding to an already impressive 2014 showing.
GT stock is now up 15% for the year-to-date, beating the S&P 500 by 8 percentage points.
Alcoa affirmed its growth forecast for global aluminum demand of 7% this year — a level it has been stuck at for a long time, thanks to worldwide sluggishness.
Although the global deficit of aluminum is increasing and the global surplus of alumina is shrinking, what Alcoa is saying about the industry suggests little upside in prices for the commodity.
That’s not good news for Alcoa, but it’s just fine news for Ball Corp. (BLL), one of the world’s largest makers of aluminum beverage cans. If Ball Corp. can count on stable (or even slightly lower) input costs based on what Alcoa is forecasting, so much the better for its business and stock price.
BLL stock was up fractionally Wednesday following Alcoa earnings, and is now up 22% for the year-to-date.
Alcoa earnings once again showed that a key driver of the new Alcoa is demand from the global aerospace industry. Indeed, the company forecasts this end market to grow 8% to 9% in 2014 (up from projections of 7% to 8%) thanks to robust demand for both large commercial aircraft and regional jets.
That’s good news for Alcoa customer Embraer (ERJ), which is banking on accelerating industry growth. The Brazilian maker of regional jets believes U.S. fleets might need as many as 300 larger regional aircraft in the next few years to replace smaller or older aircraft.
As such, the affirmation of industrywide strength in the Alcoa earnings news bodes well for Embraer as it transitions to production of a new family of larger planes.
ERJ lifted off as much as 1.2% soon after the opening bell, adding to its year-to-date gain of 16%.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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