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We Were Wrong About Alcoa (And Why That’s Great News)

A very solid and surprising start to earnings season


Alcoa AATuesday night Alcoa (NYSE:AA) posted unexpectedly strong fourth-quarter earnings announcement, marking the official start to earnings season. Because aluminum prices have been dropping, the analyst community was hesitant about how the world’s third-largest aluminum producer would fare. I’ve shared these concerns so I’ve kept AA at an F-rated sell for quite some time now.

But the surprisingly good news was that Alcoa managed to hit record profitability in its mid and downstream businesses and this helped the company swing to a profit of $242 million in the fourth quarter. This is a significant turnaround from a year earlier, when Alcoa posted a net loss of $191 million.

Meanwhile, while revenue did edge down 2% compared with Q4 2011, fourth-quarter sales of $5.9 billion still topped the $5.6 billion consensus estimate by 5%. This, plus the company’s optimistic outlook for 2013 aluminum demand, sent shares of AA up at Wednesday’s  open although the stock finished basically flat for the day.

Is it time for me to change my long-standing sell recommendation for AA? When I add this new data to our Portfolio Grader tool over the weekend, we’ll have a better idea about the proper action to take. But in the meantime, because this first earnings announcement set a good tone for earnings season, we’re seeing modest gains across Wall Street Wednesday morning that lasted for the remainder of the day.

And I would have no problem with seeing even more companies trump estimates this earnings season.

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