Alcoa Earnings Review: Better Than Expected Results

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Alcoa (AA: 11.17 +1.36%) kicked off the earnings season with better than expected second quarter results. The company reported EPS of ($.26) which exceeded analyst expectations of ($.38). Revenue came in at $4.24 billion which was also ahead of Wall Street consensus estimates of $3.93 billion, but was down 41% from a year ago.

Key Highlights

· Revenues of $4.2 billion, up 2% from 1Q09, but down 41% from 2Q08 on economic downturn and 49% drop in metal price.

· Loss from continuing operations of $312 million, or $0.32 per share, a $168 million improvement over 1Q09.

· Excluding restructuring, loss was $256 million, or $0.26 per share.

· Strong liquidity with $851 million of cash on hand.

· Debt-to-Capital ratio down 80 basis points from 1Q09 to 39.8%

“Our cash generation initiatives, productivity improvements, and portfolio changes are working. Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry,” said Klaus Kleinfeld, Alcoa President and Chief Executive Officer. “Our operational and financial initiatives also provide Alcoa with the focus and flexibility to compete and grow in the most profitable segments of the industry as the economy recovers.”

Earnings Analysis

This marks the company’s third consecutive quarterly loss, but for the first time since the fourth quarter of 2007 Alcoa actually delivered better results that Wall Street was expecting. While Alcoa still sees global demand for aluminum declining by 7% this year, there appears to be positive signs of stabilization.

Share Performance

Alcoa’s shares are up 5% in early morning trading following the better than expected earnings. However, since the beginning of the year, the stock is down 16%.

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