Alcoa (AA), the largest aluminum producer in the United States, unofficially kicked off earnings season with a bang yesterday.
And if Alcoa earnings are responsible for setting the tone for the rest of the Q3 season, investors can expect strong results from corporate America in the coming weeks.
Alcoa: Strong Q3 Earnings
AA stock finished down more than 4% Thursday, even though the aluminum giant actually topped analyst estimates for both the top and bottom lines. Revenues improved 8.2% year-over-year to $6.2 billion, while adjusted earnings hit 31 cents per share — nearly triple last year’s figure and 8 cents better than the Wall Street consensus.
Alcoa chalked up much of its killer quarter to continued improvement in its “upstream” business — the locating and extracting of natural resources. Alcoa bragged in a press release yesterday that the company improved its upstream operations for a 12th straight quarter. Meanwhile, AA’s Primary Metals segment experienced its highest EBITDA per metric ton since mid-2008 as it reaped the benefits of increasing aluminum prices.
Alcoa also produced a “record volume of automotive sheet” last quarter, as demand from automakers like Ford (F) ramped up. And the price per metric ton to Alcoa’s customers rose 16%, as the company shuttered high-cost smelters in Tennessee and Australia.
So … why did AA stock slump so hard yesterday?
You can thank everyone else. The stock market suffered one of its worst days of the year — including the Dow Jones Industrial Average’s biggest loss of 2014 — and Alcoa was simply caught in the crossfire.
Alcoa? I wouldn’t worry about Alcoa.
With big-scale customers like Ford likely to put a floor on demand, Alcoa is positioned nicely for the future. AA also is moving more aggressively into the aerospace industry, and last quarter the company signed contracts worth a total of $2 billion with Boeing (BA) and United Technologies (UTX) subsidiary Pratt & Whitney.
Moreover, Alcoa expects the global demand for aluminum to rise by 7% this year. Combine that with rising aluminum prices and effective cost-cutting initiatives, and Thursday’s dip in Alcoa stock is starting to look more like a buying opportunity than anything.
If you’re looking for exposure to the materials space, you’re probably looking at a rocky ride no matter what. But Alcoa stock at least has a promising outlook.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.
