What to Watch for When Alcoa Reports Earnings

Alcoa is seen as an economic bellwether and is set to report earnings on Thursday. Here's what investors should keep in mind.

Jan 8, 2014 at 1:20PM

Aluminum giant Alcoa (NYSE:AA) is set to report earnings on Thursday, January 9. Alcoa is often viewed as an economic bellwether, since it serves a multitude of major markets including the aerospace, energy, automotive, and transportation industries. And, since Alcoa is one of the first of the basic materials giants to report earnings, its reports are especially important to the kickoff of corporate earnings season.

As the economic recovery proceeds, Alcoa's businesses are also strengthening. At the same time, Alcoa has been barely profitable over the past couple of quarters, meaning its execution abilities are critical to once again posting a profit. Here's what investors should pay particular attention to when Alcoa reports earnings on Thursday.

Some progress made, more needed
Alcoa generated some momentum in its key business segments over the past couple of quarters, which will need to continue if the company is to once again turn a profit. Alcoa generated $0.11 per share in adjusted diluted earnings in the third quarter.

Strong results across the aluminum industry bode well for Alcoa, as the industry is clearly benefiting from the steady global economic recovery. For example, Rio Tinto (NYSE:RIO) also saw momentum in its aluminum business through the first three quarters of the fiscal year. Its aluminum production increased 5% through the first nine months of the year. Even other domestic aluminum producers are quickly getting back to health. Kaiser Aluminum (NASDAQ:KALU) has reported strong profitability throughout the year. Its diluted earnings are up 1% through the first nine months to $4.02 per share.

Kaiser Aluminum management maintains a very positive outlook for its business, and expects improved performance for itself in the fourth quarter, due to strength in the aerospace and automotive markets. Clearly, this should benefit Alcoa significantly, as it's consistently been a leader in these industries. As a result, there's a fair amount of pressure on Alcoa to execute in the final quarter of the fiscal year.

Can Alcoa generate free cash flow in 2013?
Alcoa's overarching 2013 target is to be free-cash flow positive. Despite Alcoa's profitability in the third quarter, it was still free-cash flow negative. Alcoa's initiatives to produce positive free cash flow for full-year 2013 include productivity gains, managing its growth capital, producing strong results from its Saudi joint venture, and maintaining a healthy balance sheet.

Alcoa has succeeded on a few of these fronts through the first nine months of the year, which sets the stage for its fourth-quarter results. For instance, Alcoa management's goal is for $750 million in productivity gains, and through the first nine months it's already generated $825 million in productivity.

However, of particular concern is Alcoa's Saudi joint venture, where the company wanted to realize $350 million in gains. Unfortunately, it's less than halfway to that goal through the first nine months of the year, meaning it still has a ways to go. Another area to watch is Alcoa's balance sheet. The company hopes to keep a strict debt-to-capital ratio of between 30%-35%. At the end of its most recent quarter, Alcoa's debt-to-capital ratio stood at 34.5%, meaning there's very little wiggle room left.

A Foolish look ahead
Aluminum giant Alcoa is an economic bellwether in the United States, as it serves a wide range of industries across the globe. Its quarterly reports mark the unofficial start to earnings season. And, since Alcoa has made some solid progress through the first nine months of the year, investors will be eager to find out whether the company can keep its momentum going. Alcoa's full-year goal is to become free cash-flow positive, and it has outlined several strategic initiatives to help it meet that goal. Investors will find out on Thursday whether management has executed.

Discover our top stock pick for the new year
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

Bob Ciura has no position in any stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers