Next Monday, Alcoa (NYSE:AA) will release its second-quarter earnings report, marking the official beginning of earnings season. Yet with the stock market having been on pins and needles lately, investors hoping that Alcoa's earnings will help stocks rally are setting themselves up for a big disappointment.

For a stock with a market cap of just $8 billion, Alcoa arguably gets far more attention than it deserves. Yet the company has clung to its membership within the Dow Jones Industrials (DJINDICES:^DJI) even as the prospects for the global aluminum market have kept the stock near multiyear lows. Let's take an early look at what's been happening with Alcoa over the past quarter and what we're likely to see in its quarterly report on Monday.

Stats on Alcoa

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$5.86 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

When will Alcoa earnings hit bottom?
Analysts have grown more pessimistic about Alcoa's earnings prospects over the past several months, having slashed their estimates for the June quarter by more than half and reduced their full-year consensus figures for 2013 and 2014 by about 30% each. The stock has also been stuck in the doldrums: It has lost about 7% since early April and is one of just two Dow stocks to have posted an overall loss so far in 2013.

One of Alcoa's biggest challenges lately has been the slowdown in emerging-market economies, especially China. Without the growth driver that emerging-market infrastructure and construction development provided in past years, worldwide aluminum demand has fallen, sending prices sharply lower and hurting Alcoa's potential profit. The price plunge has also created collateral damage throughout the industry. Rio Tinto (NYSE:RIO) posted a big full-year loss due largely to its $14 billion writedown of aluminum and coal assets, and so long as commodity prices remain weak, those writedowns aren't likely to reverse themselves.

The Chinese slowdown in particular has created large gluts of aluminum on the world market. Chinalco (NYSE:ACH) and other Chinese aluminum-producing competitors have merely added to the supply-and-demand imbalance, making it hard to picture a turnaround for Alcoa's earnings anytime soon. Just last week, the company said it would close a smelter in Italy after having reduced its use of the facility over the past three years.

But Alcoa has been working hard to respond to longer-term competitive threats. Even as Boeing (NYSE:BA) and Airbus have moved away from aluminum to incorporate a greater amount of lightweight composites in their aircraft designs, Alcoa has expanded its Kitts Green facility in the U.K. to produce greater amounts of aluminum-lithium alloys. Boeing has said it would consider such alloys for aircraft, but one Boeing senior executive expressed a seeming wait-and-see attitude, citing concerns about the alloy's high cost and multiple sources of commodity materials.

AA Total Return Price Chart

Alcoa Total Return Price data by YCharts.

Alcoa has also worked to reduce its overall costs. Earlier this week, the company started modernizing a plant in upstate New York, taking advantage of a state offer of funding and inexpensive electricity in exchange for creating jobs in an area that has faced economic challenges recently. Such partnerships will be essential as Alcoa fights Chinese rivals that get similar assistance from public sources.

In Monday's Alcoa earnings report, watch closely to see how the company responds to its recent bond-rating reduction to junk status. If financing costs for the company's extensive debt start to rise, it could mark yet another hurdle for Alcoa to overcome before it can finally turn itself around.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.