Will Alcoa Earnings Send the Dow Stumbling or Soaring?

Alcoa (AA +0.00%) will release its quarterly report on Tuesday, marking the first time in about 55 years that the aluminum giant has reported as a nonmember of the Dow Jones Industrials (^DJI +0.75%). Yet even though the Dow dismissed Alcoa from its ranks late last month, the company's earnings could nevertheless have a huge impact on the average and the rest of the stock market because of their reading on the industrial commodities sector.

Alcoa's report has traditionally served as the official beginning of each quarter's earnings season. This owes only partly to the release date's place on the calendar. The aluminum company acts as a bellwether of industry, especially given the importance of the lightweight metal for production of automobiles, airplanes, and other products in which weight and strength are both key factors. Both Tesla (TSLA 0.44%) and Ford (F +6.56%) have begun to consider using more aluminum for their vehicles. Will the metal maker be yet another example of a stock that does well after leaving the Dow, or will the continuing economic malaise around the world take its toll on the company's earnings? Let's take an early look at what's been happening with Alcoa over the past quarter and what we're likely to see in its report.

Stats on Alcoa

Source: Yahoo! Finance.

What's next for Alcoa earnings?
In recent months, analysts have looked down on the prospects for Alcoa earnings. They've cut their third-quarter projections almost in half and reduced full-year 2013 estimates by almost 20%. The stock hasn't gone anywhere lately, rising just 4% since early July.

Alcoa has struggled for a long time, primarily due to a bad supply-and-demand situation. In its second quarter, Alcoa saw realized prices fall by 4% as increased production of aluminum worldwide by competitors, particularly in China, drove up supplies. As a result, Alcoa has continued to conduct strategic shutdowns of some production facilities, leading to gradual revenue declines designed to minimize the damage until industry conditions improve.

But aluminum has shown signs of increased demand, especially from the reviving auto industry. The huge success of Tesla's Model S owes largely to the fact that its range exceeds that of other electric vehicles, it has an all-aluminum body, and it received one of the highest safety ratings ever granted by the regulatory agency that oversees car safety. Unfortunately, Tesla doesn't generate enough sales to make a big impact on the aluminum market. Ford, though, is looking at adopting an aluminum body for its popular F-150 pickup line, potentially trimming 15% from its weight and greatly improving fuel efficiency. With Ford having to deal with rising gas-mileage standards, Alcoa could be a beneficiary from efforts to lighten vehicles while maintaining their strength.

Indeed, Alcoa has aimed its efforts at making itself more attractive to the auto industry. Late last month, the company won an innovation prize for an aluminum-bonding technology that will help it more easily keep various components connected with high-strength bonds.

In the Alcoa earnings report, watch to see how the company's strategic cost-cutting moves compare with those of its competitors. If both Alcoa and Aluminum Corp. of China continue to reduce production in concert, it could eventually provide the long-term boost to aluminum prices that Alcoa needs to find real profit growth.

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