Alcoa Clears A Very Low Bar (AA, ACH, CENX, KALU)

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Alcoa, Inc. (NYSE: AA) managed to beat earnings estimates from continuing operations, if you can imagine.  The aluminum giant, and first of the DJIA 30 components to report earnings, reported earnings of $0.13 EPS vs. $0.12 EPS expected from Thomson Reuters; revenues were $5.2 billion vs. $5.05 billion expected.  Free cash flow in the second quarter of 2010 totaled $87 million.

What is more important than anything here is that the recent lower prices in aluminum is being offset by stronger demand.  The company is now looking at global aluminum consumption going up 12% rather than a prior target of 10% growth amid improved global aluminum demand.

After the first half of the year, Alcoa said it is tracking toward its expanded goals for 2010, including: $1.4 billion of the targeted $2.5 billion in procurement savings; $311 million of the targeted $500 million in annual overhead reduction savings; days of working capital at 42, a six-day improvement from the same period last year; and $514 million toward the targeted $1.25 billion in capital spending.

Some other basic data is as follows: $1.34 billion cash on hand; dent decreased $465 million from the year-ago period; debt to capital was 38.4%.  The company did see lower average realized metal prices of $22 per metric ton, with an average of $2,309 per ton in the quarter.

Alcoa shares are halted after the close, but investors need to remember that the stock slid from $14 to $10 before recovering to almost $11 in the last week.  It is also worth noting that the Thomson Reuters consensus estimate 90-days ago was $0.23 rather than the $0.12 consensus that we had today ahead of its earnings.  The bar was set very low here.

It is too soon to start giving grades out on the report, but aluminum shares are rising after this report:

  • Aluminum Corporation Of China Limited (NYSE: ACH) is up 2% in after-hours;
  • Century Aluminum Co. (NASDAQ: CENX) is up over 3% after closing down almost 2% in regular trading.
  • Kaiser Aluminum Corporation (NASDAQ: KALU) is actually flat to lower in the after-hours.

UPDATE AFTER HALT: At 4:47 PM EST Alcoa shares are up 3.5% at $11.25 after closing down 0.64% at $10.87 on almost 700,000 shares since the halt was lifted.

JON C. OGG