Have Alcoa Inc Earnings Finally Turned the Corner?

Alcoa (NYSE: AA  ) will release its quarterly report on Thursday, and even though the company is no longer a member of the Dow Jones Industrials, it still has the reputation for starting off earnings season. For the first time in a long time, Alcoa has investors excited about its future prospects, even as it and fellow industry peers Aluminum Co. of China (NYSE: ACH  ) and Rio Tinto's (NYSE: RIO  ) Alcan subsidiary have continued to deal with challenges from a glut of supply and resulting low prices for the lightweight metal.

One peculiarity about the aluminum industry is that unlike almost every other sector of the economy, aluminum has never really recovered from the recession and market meltdown in 2008. Despite strong demand from certain corners, especially the aluminum-hungry aerospace industry, metal prices have languished, and that has held back Alcoa from gaining back anything more than a tiny fraction of its roughly 85% decline in share price during the financial crisis. Finally, though, the stock has started to press higher recently. Could that signal an end to the downturn in aluminum? 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 report.

Stats on Alcoa

Analyst EPS Estimate

$0.06

Change From Year-Ago EPS

0%

Revenue Estimate

$5.40 billion

Change From Year-Ago Revenue

(8.5%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Alcoa earnings stay the course this quarter?
In recent months, analysts have been a bit more pessimistic about Alcoa's earnings prospects, cutting $0.02 per share from their earnings estimates for the full 2014 year. The stock has defied that pessimism, though, jumping 32% since early October.

Alcoa's third-quarter earnings report got the company off on the right foot, with the company reversing a year-earlier loss with a modest profit of $24 million for the quarter. In particular, investors were pleased with certain aspects of the company's guidance for 2014, with strong gains in China expected from the automotive and heavy truck and trailer segments. Anticipated gains in global aerospace demand of 9% to 10% should also help Alcoa and peers Chinalco and Rio Tinto Alcan in their efforts to keep prices up.

But the big news of the quarter came later in October, when Alcoa announced a joint venture with Russia's VSMPO-AVISMA, a producer of aircraft-grade titanium. The goal of the consortium will be to provide a one-stop shop for the titanium and aluminum demands of the aerospace industry, which expects trillions of dollars of new orders in the next 20 years. Given the reputation of both aluminum and titanium as being lightweight and durable, combining forces makes sense for both companies and should give Alcoa a competitive advantage over Rio Tinto Alcan and Chinalco in working with aerospace customers.

Moreover, Alcoa has plenty of opportunities to further its growth in the coming years. Big gains in car and truck sales in the U.S. have reinvigorated the auto industry, giving manufacturers more latitude to consider energy-saving engineering efforts that could boost the amount of aluminum used in new vehicle designs. Similarly, supply deals with Airbus and Boeing point to the need for high-quality aluminum production for mission-critical applications in aerospace and defense, while other uses in energy and electronics will also be critical to Alcoa's long-term success.

In the Alcoa earnings report, watch closely for further signs of overall economic recovery not just in the key China region but also in hard-hit areas like Europe, which has been taking steps toward coming out of recession recently. Shareholders are already anticipating better results for Alcoa, so the company will need to show signs of progress in order to avoid disappointing investors on Thursday.

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