Aluminum giant Alcoa Inc (NYSE:AA) turned in a superb fourth quarter on Monday as it fulfilled its traditional role of being the first major public company to announce quarterly earnings, serving as an economic barometer for Wall Street analysts who are ever so eager to extrapolate.
AA stock turned in a superb quarter, crushing analyst estimates on both earnings and revenue. Consensus estimates for earnings per share of 29 cents and $6 billion in revenue were steamrolled, as Alcoa instead notched EPS of 33 cents on nearly $6.4 billion in revenue.
If investors consider Alcoa earnings a good gauge of the economy and how the rest of earnings season could pan out — which they do — then there are some very good days still ahead of us.
Oil Price Slump, Aerospace Sales Boost Alcoa Results
The editorial staff at InvestorPlace has been extremely bullish on AA stock leading up to yesterday’s report. In December, Blue Chip Growth Editor Louis Navellier lauded the company’s acquisition of Tital, a German aerospace parts maker. Germany isn’t known for shoddy mechanical work, and Tital fits hand-in-glove with that conception, manufacturing precision, high-performance parts that command a high margin.
The Tital acquisition was timely, and Alcoa sees 9%-10% growth from its aerospace division, a higher growth rate than the the 7% rise in aluminum demand it projects in 2015. Strong demand from the aircraft behemoths Boeing Co (NYSE:BA) and Airbus Group factored heavily into the strong growth projections in aerospace.
But Alcoa had further tailwinds in the fourth quarter, as InvestorPlace feature writer Dan Burrows noted in his bullish Alcoa article on Jan. 8:
“…Alcoa is a huge user of energy, and lower oil prices should boost operating margins. Indeed, analysts at Morgan Stanley figure that every $10 change in the price of a barrel of oil equals a change of $80 million to $90 million in Alcoa’s operating earnings.”
Sure enough, lower oil prices came to the aid of AA last quarter: the company hauled in $1.5 billion in cash from operations last period — the highest number in the company’s history. Alcoa also logged the strongest full-year operating results since 2008.
Also positive for Alcoa is the impact that demand from Ford Motor Company (NYSE:F) could have on operations in 2015. Last year, Ford went through a major redesign in one of its most popular models, the Ford F-150, shifting from a welded steel construction to a lightweight aluminum material.
Alcoa and the Indian-owned Novelis Inc. supply aluminum for the Ford F-150. Last year, there were some production problems related to a plant that was slow to come online, and so the aluminum F-150 didn’t sell as well as expected. In 2015, that should change, as the manufacturing kinks have been worked out.
If the new-look F-150 is a success, it will be a great indicator for the future success of both Ford and Alcoa.
Alcoa shares traded up sharply in pre-market trading on Tuesday but turned slightly negative by the time of this writing. That said, Blue Chip Growth Editor Louis Navellier’s prediction that Alcoa would post an earnings beat was right on point, and if you played Alcoa’s earnings with a bull call spread as Joseph Hargett advised on Jan. 8, you would have walked away with the maximum profit that trade afforded.
The strong fourth-quarter performance of Alcoa bodes well for our economy and for the rest of earnings season (No, not you, energy stocks!). Stick with AA stock after Monday’s strong results.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
