The Dow Jumps as Alcoa's Earnings Delight Wall Street

Cisco leads the Dow, while Alcoa's stock climbs more than 5% after its earnings release.

Jul 9, 2014 at 2:30PM
Daily Fool

After two days of losses, the Dow Jones Industrial Average (DJINDICES:^DJI) has put together a strong 75-point climb as of 2:30 p.m. Wednesday. The majority of the index's member stocks are in the green so far. Cisco (NASDAQ:CSCO) has pulled in more than 1.6% to lead the Dow. Meanwhile, Alcoa's (NYSE:AA) stock has surged after the company reported upbeat earnings following the closing bell yesterday. Let's catch up on what you need to know.

Cisco's long-term approach

Cisco Logo

Source: Wikimedia Commons

Cisco put up strong numbers today despite little news from the company, part of a year-to-date run that has seen the stock jump by nearly 14%. The tech company's revenue hasn't gotten out from under its recent slump, but for Cisco investors, it's all about the long term -- particularly for the stock's rewarding 3.1% dividend yield. The company is pushing into data centers and other new growth areas in an effort to outweigh ongoing falling sales at its core switching business. In its most recent quarter, Cisco posted data center sales growth of more than 28% year over year.

While the business is still small, less than a quarter of the size of the company's switching group by revenue and accounting for just over 7% of overall sales, it's quickly becoming a more vital piece of Cisco -- and the company's hopes for a brighter future.

A former Dow member is making the biggest waves on the market today, as Alcoa's stock has boomed by 5.8%. The aluminum giant smashed expectations in a surprise earnings hit, posting revenue that outpaced Wall Street's projections by 2.6% and adjusted earnings per share of $0.18 that topped expectations by 50%. It's a pivotal move back to profitability for Alcoa, and while the aluminum maker's transition into higher-growth markets has succeeded so far, it was the company's older businesses that did much of the heavy in the second quarter.

Alcoa's smelting business has weighed down results in the post-recession period, but the unit posted operating income of $97 million after taxes, a huge turnaround from the $32 million the primary metals unit lost in the same quarter last year. Cost-cutting has paid off for the company in steadying prices, particularly in reducing capacity after oversupply pounded the materials sector in the last few years. Analysts pointed toward more long-term growth potential ahead in the primary metals business, and Alcoa paired its quarterly success with a strong result from its engineered products division, too.

The unit, which makes fabricated products for vehicles and aircraft, posted profit growth of 5.7% for the quarter. There's much more room for growth here, as well: Alcoa's acquisition of British aerospace parts maker Firth Rixson looks to tie the company to the booming aviation sector. Alcoa's leadership projects double-digit annual sales growth from Firth Rixson through 2019, and together with the bounce in the company's primary metals division, this unit looks to keep Alcoa's stock flying high.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. 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.

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