Tic-tac-toe, investors want to know: After beating estimates in its fiscal first and second quarters, can aluminum kingpin Alcoa (NYSE:AA) make it three in a row for earnings beats when it reports its fiscal Q3 2006 numbers tomorrow morning?

What analysts say:

  • Buy, sell, or waffle? Eighteen analysts follow Alcoa. Of these, 10 say to buy the stock, seven more vote hold, and only one counsels selling.
  • Revenues. On average, analysts will be looking for 17% revenue growth tomorrow, for a total of nearly $7.7 billion in sales.
  • Earnings. Profits are expected to more than double to $0.77 per share.

What management says:
Summarizing the results of a superb quarter three months ago, CEO Alain Belda called Q2 "another great quarter, no matter how you measure it," continuing that Alcoa's "results for the first half of 2006 were greater than any full year in the history of Alcoa, except for one." Belda then responded to cynics who might argue that, sure, the quarter was great, but cyclical companies like Alcoa by definition have some great quarters, as demand for their products surges, only to be followed by lousy quarters when demand ebbs. He argued: "Have we benefited from high metal price? Sure, we did. But more importantly, we believe that we have locked in productivity gains across many businesses ."

Belda then moved on to head off disappointment with his company's third-quarter numbers -- three months before it could arise. He noted that sequential increases in sales and profits were unlikely to be seen in tomorrow's results, due to the simple fact that Q3 is a seasonally weak quarter at Alcoa. That said, he did promise investors results that would show "a much higher level of profitability than in prior years."

What management does:
Taking a long-term view, Alcoa's rolling results show two straight quarters of improving profitability at each of the gross, operating, and net profit levels. Sequential comparisons aside (and Belda's right -- they're irrelevant to a firm that historically has seasonally weak and seasonally strong quarters), if Alcoa stays true to its word and delivers results better than we've seen "in prior years," the rolling profitability tallies should continue climbing tomorrow.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

20.2

19.7

19.2

18.9

20.0

21.6

Op.

9.9

9.0

8.5

8.2

9.6

11.9

Net

5.1

5.1

5.0

4.7

5.8

6.6
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I'm not ordinarily one for taking CEO statements at face value, but in Belda's case, the facts bear out his assertion that Alcoa has improved productivity. In the first half of this year, the firm grew its sales 18% versus H1 2005, while cost of goods sold rose only 10% -- that's the power of rising aluminum prices working in its favor. At the same time, the firm has kept its selling, general, and administrative expenses down below 4% growth -- and that's improved productivity.

Working capital management looks to be going similarly well. Again, as measured against 18% sales growth, the company has kept accounts receivable growing at just over half that rate, and held inventory growth down to 15%. As a result, operating cash flow has more than tripled in comparison to what the firm generated in the first half of 2005. Nice. Tomorrow, let's make sure to check the firm's balance sheet and see if it has kept up this good work.

Competitors:

  • Alcan (NYSE:AL)
  • Norsk Hydro (NYSE:NHY)

Customers:

  • AmBev (NYSE:ABV)
  • Embraer (NYSE:ERJ)
  • Reliance Steel (NYSE:RS)
  • Worthington (NYSE:WOR)

What did we expect to see out of Alcoa last quarter, and what did it produce? Find out in:

Our Motley Fool CAPS investment service rates Alcoa just two stars. To rate this one yourself, click here -- it's free to do so.

Fool contributor Rich Smith does not own shares of any company named above. Embraer is a Stock Advisor selection. The Fool has a disclosure policy of steel.