Commodities boom or not, aluminum giant Alcoa (NYSE:AA) hasn't exactly had the best go of things lately. After doubling in 2003, the stock has been on a rather steady slide for the past 18 months and had given up about 70% of the gains it made in 2003.
Why? Well, aluminum prices haven't gone quite as crazy as those of some other metals, and the prices of essential inputs have also climbed pretty considerably. Topping it off, Alcoa has had a fairly spotty record of meeting or exceeding analyst expectations for the past six quarters.
On Thursday evening, though, Alcoa posted fairly solid numbers that slightly exceeded the mean estimate. Revenue climbed 13% for the whole company (up 8% sequentially), and all operating segments posted revenue growth. In core operating earnings, though, Alcoa saw a 6% drop and a nearly 2% compression in operating margin.
Alcoa got a boost in the quarter from strength in aerospace, commercial transport, and some industrial products. Based on what we've all heard from the major airplane manufacturers, it doesn't seem unreasonable to think that aerospace will continue to be a strong market for aluminum companies in the near term. Looking a bit further ahead, should markets like automobiles and commercial construction pick up, that would be yet another boost for Alcoa.
In the meantime, Alcoa management continues to push ahead with restructuring efforts and capacity build-outs. The company is already in the midst of a significant head-count reduction, and new or expanded facilities in locations including Iceland, Brazil, and Australia appear to be on schedule.
Though Alcoa management believes that the supply deficit in aluminum and alumina (aluminum oxide) will continue through 2007, only time will tell. Alcoa isn't the only aluminum company looking to expand, and Chinese competitors such as Aluminum Corporation of China (NYSE:ACH) are a wild card at this point.
While Alcoa's stock is near a 52-week low, I'm still more or less indifferent. Neither a single-digit return on capital nor a dicey recent history of meeting estimates thrills me, and I think there are other, better ideas in the metal world right now.
More Takes abound on aluminum:
- Fool by Numbers: Alcoa Q2 2005
- Alcan Can, Can't It?
- Alcoa Won't Be Foiled
- Should Investors Rely Upon Reliance?
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.
