Grand Master Alcoa and the 2013 Earnings Parade

Every parade needs an audience. Although I'm detecting little fanfare for the fourth-quarter earnings parade that's set to begin after the close on Tuesday with aluminum giant Alcoa (NYSE: AA  ) , Foolish investors will line the streets to extract as much insight into the state of the global economy and the industrial outlook for 2013 as they can.

All signs point to another modestly profitable quarter for Alcoa as the company continues to make the most of an extremely challenging market environment for aluminum. Analysts are looking for earnings of $0.06 per share, a slight downward revision from prior projections for $0.07 per share. I discussed in some detail the key areas to watch for Alcoa in this premium research report available from The Motley Fool, and I encourage investors to gauge the company's performance over each the next several quarters using those company-tailored metrics.

Essentially, Alcoa's capacity to deliver shareholder value within this weak price environment for aluminum hinges upon its ability to sustain recent cost and productivity enhancements -- particularly within the company's alumina and primary aluminum units -- while continuing to reduce total debt. Particularly in light of Moody's announcement last month that Alcoa is under review for a potential downgrade of its debt, both the rate of debt reduction and the company's margin performance across all business units will come under the microscope this quarter.

For most investors, meanwhile, Alcoa's earnings reports provide a valuable update on the state of global industrial demand and the related forward outlook. In particular, the company provides a terrific window into the automotive and aerospace industries at a time when both of those industries have provided noteworthy oases of strength within an otherwise struggling global economy. For early hints regarding the business outlook for airliner manufacturer Boeing (NYSE: BA  ) -- or automakers like Ford (NYSE: F  ) and Tesla Motors (NASDAQ: TSLA  ) that are leaning on aluminum to yield lighter, more fuel-efficient vehicles -- Alcoa's quarterly assessments of these end markets are simply indispensable.

The report will also offer timely indications of industrial activity in China, which suffered significant setbacks during 2012 that were felt throughout the global economy. In this forthcoming release from Alcoa, I'll be looking for some confirmation of miner Rio Tinto's (NYSE: RIO  ) assertion that the worst of China's recent slowdown may already be behind us.

With global aluminum demand expected to expand by about 7% during 2013, and considering the impending start-up of a new Alcoa facility in Saudi Arabia, I see potential for modest investment gains in shares of Alcoa during the year as the company continues to adapt effectively to this prolonged condition of excess global capacity. Meanwhile, I consider the shares of Alcoa to be a generational opportunity, and I urge investors to access this premium research report to consider my long-term investment thesis.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 08, 2013, at 12:42 PM, maniladad wrote:

    Alcoa's price puts it 'way below its long-term historical CAGR (Compound Annual Growth Rate). If you have any faith in the reversion-to-mean concept and you think the company is basically solid, this might be a good time to make a long-term investment. I do and I did.

  • Report this Comment On January 08, 2013, at 10:02 PM, skypilot2005 wrote:

    http://www.reuters.com/article/2013/01/09/alcoa-results-cost...

    Alcoa says output cuts drive cost reduction

    1/8/13

    Alcoa closer to 5-year production cost cut target

    * Potential unwinding of financing deals not a concern

    Sky

  • Report this Comment On January 09, 2013, at 9:54 AM, XMFSinchiruna wrote:

    maniladad,

    If I may say so, that is an ideal mindset with which to approach this particular stock. Bravo!

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