Alcoa (AA) earnings mark the unofficial start of the reporting season on October 8, and both the aluminum company and broader markets are seen posting solid gains for the third quarter.
In the case of Alcoa earnings, the bottom line will see continued growth thanks to the company’s new focus on selling higher-priced — and higher-margin — finished products.
Demand for these engineered aluminum components is rising in everything from aerospace to auto manufacturing, and that has been driving strong sales and earnings growth at Aloca — as well as pushing up Alcoa stock.
For the most recent quarter, analysts forecast Alcoa earnings to come in at 23 cents per share, or more than double the 11 cents recorded in the year-ago period. Revenue is projected to increase just 1.5% to $5.85 billion, with cost cuts and margin expansion being the difference-maker on the bottom line.
The robust Alcoa earnings growth results from a multi-year cost cutting and repositioning program, and the shift toward high-tech components is still accelerating up.
Earlier this year, Alcoa inked a deal to buy jet-engine components producer Firth Rixson for $2.85 billion. That dovetails with other commitments where Alcoa will sell jet-engine parts to Pratt & Whitney — part of United Technologies (UTI) — and furnish Boeing (BA) with $1 billion in aluminum products.
Additionally, Ford (F) recently announced plans to build its next-generation Super Duty pickup from aluminum. Later this year it will debut a light-duty F-150 pickup made from aluminum.
Alcoa Earnings a Bellwether for the Season?
Alcoa isn’t really the global economic bellwether it once was given it lower reliance on demand for upstream aluminum, but it should be a good indicator of what S&P 500 earnings are set for this earnings season.
After all, like Alcoa, bottom-line growth is going to be driven once again much more by margin expansion than revenue growth.
Analysts forecast the S&P 500 to post third-quarter earnings growth of 4.6%, according to data from FactSet, led by the telecom, materials, healthcare and financials.
As for revenue growth, the good news is it’s expected to pick up sharply from earnings season past. The bad news is it’s still forecast to lag profit growth. Analysts project S&P 500 third-quarter revenue to advance 3.6%, led by healthcare.
In addition to the uneven pace of domestic demand, the market will be keen to hear how companies are grappling with slower growth in China, as well as the geopolitical crisis in Russia and Ukraine, as well as the Middle East.
Adding to those concerns will be commentary on the strengthening dollar. The greenback has gone bonkers recently against major currencies like the euro and yen. Although that won’t show up in third-quarter earnings, it could dampen companies’ forecasts.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
