Alcoa Inc. Earnings: Margins Shrink as Costs Rise

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S&P 500 (NYSE:SPY) component Alcoa Inc. (NYSE:AA) reported a drop to a loss in the fourth quarter driven by higher costs. Alcoa is a global producer of aluminum. It is mainly engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined. It is actively involved in a range of industries, including technology, mining, smelting, and recycling.

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Alcoa Earnings Cheat Sheet for the Fourth Quarter

Results: Reported a loss of $191 million (18 cents per diluted share) in the quarter. Alcoa Inc. had a net income of $258 million or 25 cents per share in the year earlier quarter.

Revenue: Rose 6% to $5.99 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: AA fell short of the mean analyst estimate of 5 cents per share. It beat the average revenue estimate of $5.79 billion.

Quoting Management: “Alcoa turned in solid performance in a volatile year by responding quickly to changing market conditions and relentlessly managing cash. We stayed focused on growth and took aggressive action to cut costs, improve our competitiveness, and strengthen our balance sheet,” said Alcoa Chairman and CEO Klaus Kleinfeld. “For 2012, we expect global aluminum demand to grow seven percent and are forecasting a global deficit in primary aluminum supply.”

Key Stats:

Gross margin shrank seven percentage points to 12.7%. The contraction appeared to be driven by increased costs, which rose 15.2% from the year earlier quarter while revenue rose 6%.

Revenue has risen the past four quarters. Revenue increased 21.4% to $6.42 billion in the third quarter. The figure rose 27% in the second quarter from the year earlier and climbed 21.9% in the first quarter from the year-ago quarter.

The company has now fallen short of analyst estimates for the last three quarters. It missed the mark by 8 cents in the third quarter and by 2 cents in the second quarter.

The company’s loss in the latest quarter follows profits in the previous three quarters. The company reported a profit of $172 million in the third quarter, a profit of $322 million in the second quarter and $308 million in the first.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the first quarter of the next fiscal year has moved down from 26 cents a share to 15 cents over the last ninety days. For the fiscal year, the average estimate has moved down from $1.08 a share to 79 cents over the last ninety days.

Competitors to Watch: Aluminum Corp. of China Ltd. (NYSE:ACH),  Kaiser Aluminum Corp. (NASDAQ:KALU), Alumina Limited (NYSE:AWC), Noranda Aluminum Holding Corp. (NYSE:NOR), Century Aluminum Company (NASDAQ:CENX), AK Steel Holding Corp. (NYSE:AKS), Nucor Corporation (NYSE:NUE), United States Steel Corp. (NYSE:X), Arcelor Mittal (NYSE:MT) and POSCO (NYSE:PKX).

Stock Performance: Shares of AA were up 3.2% from the previous close.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

To contact the reporter on this story: Derek Hoffman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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