Shares of aluminum giant Alcoa (NYSE:AA) were higher by 10% around noon EDT on Tuesday. Although the company is set to report earnings on Wednesday, it has already announced results, so its report isn't likely to be much of a surprise. But before the market opened, the company released some interesting news that's likely to come up during the earnings call.
When Alcoa announced its results on July 8, CEO Roy Harvey said: "In the second quarter, we realized gains in productivity, cost savings and also increased our cash balance. Now, we're working to increase overall liquidity and gain even greater flexibility as we execute on our strategy, including the ongoing portfolio review and the sale of non-core assets." In other words, Alcoa is working to shore up its balance sheet as it continues to overhaul its business, not a bad call given the global impact of COVID-19.
With that goal in mind, Alcoa announced after the close on Monday, July 13, that it had completed the sale of $750 million of bonds. The notes, with a 5.5% interest rate, will come due in 2027. In that release, the aluminum maker noted that a key point of the sale was to increase the company's cash balance. Basically, a day before it released earnings, it announced that it had lived up to one of the goals it outlined on July 8. That put investors in a good mood.
Aluminum has recovered from a swoon in the first few months of the year, which is good news for Alcoa. But base aluminum is a commodity business, and Alcoa largely sells undifferentiated products. The company's top and bottom lines are basically subject to the whims of the market. And since aluminum is a cyclical business, long-term investors shouldn't let near-term price swings (in aluminum or the company's stock price) bias their view of the underlying factors driving results.
For example, the U.S. entered a recession in February largely because of COVID-19, which is again seeing a rise. And the rest of the world is also facing ongoing coronavirus issues. All in, there are still a great many uncertainties here, and volatility is likely to remain elevated.