How Will Alcoa Start Off a Scary Earnings Season?

Micromills are just one way that Alcoa has worked at becoming more competitive. Image source: Alcoa.

With just a $12 billion market capitalization, metals specialist Alcoa (AA) seems like an unlikely candidate for the focal point of earnings season each quarter. Yet tradition carries a lot of weight on Wall Street, and for years, the metal maker's early reporting date has given Alcoa the role of leading market analysts into the new quarter. With Alcoa set to report on Oct. 8, many investors see the company's anticipated slowdown in revenue and earnings as a signal for what's likely to be another quarter of weak results marketwide. Let's look more closely at how Alcoa has fared over the past few months and whether it can defy the consensus forecast for a poor showing to start off fourth-quarter earnings season.

Stats on Alcoa

Source: Yahoo! Finance.

Can Alcoa earnings lighten up the stock market's mood?
Over the past few months, investors have been increasingly concerned about how well Alcoa earnings are likely to fare, cutting their third-quarter estimates by nearly a dime per share and making roughly 20% reductions in their projections for the full 2015 and 2016 years. The stock has followed suit, losing about a sixth of its value since mid-June.

Alcoa's second-quarter financial report once again revealed some of the difficulties that the company has had to overcome lately. For the first time in more than a year, Alcoa's earnings fell short of what investors had expected to see, even though the company managed to boost its revenue slightly. Headwinds in the primary metals business offset much of the gains that Alcoa saw in areas like global rolled products, engineered products, and alumina. Some changes in projected growth in key industries like aerospace also had a mixed impact on the company, as Alcoa reined in its near-term predictions but boosted its growth estimates for future years.

One big issue that Alcoa has had to deal with involves rising trade tensions with China. Alcoa CEO Klaus Kleinfeld has accused Chinese aluminum producers of flaunting China's export tax on primary aluminum metal shipments by using the tactic of making semi-fabricated products solely to escape the export tax's guidelines. Kleinfeld says that these "fake semis" aren't intended to remain in their semi-fabricated state, instead competing directly with Alcoa's primary metals division and costing it sales. Yet even with an industry trade association calling out to U.S. trade representatives earlier this month, Alcoa can't expect relief to come quickly.

Nevertheless, Alcoa is moving forward quickly with a host of strategic initiatives. The company is working with automaker Ford to make future versions of the key F-150 pickup truck even lighter than its current aluminum-based design, and initial demand for the truck has been high even though the automaker has struggled to keep pace with its production efforts. At the same time, Alcoa announced earlier this month a massive investment in the additive manufacturing space, as it looks to combine 3D printing with traditional production methods to create stronger components and parts more quickly and efficiently than one could manage with additive manufacturing alone. Alcoa also closed on its deal to acquire RTI International during the quarter, broadening its reach beyond aluminum into titanium and other lightweight materials. Overall, Alcoa is working hard to become a leader not just in its traditional aluminum industry in order to serve the varied needs of its diverse clientele.

When Alcoa reports its earnings in early October, investors should look not just at the specific issues that the metal maker is working through but also at general industry conditions throughout the economy. With its unique perspective, Alcoa shines a light on the health of the broader economy, and investors truly want to see signs of recovery overseas and of continued strong growth domestically. With relatively negative consensus figures, any improvement that Alcoa manages could produce a bounce from the stock's recent difficulties.