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Alcoa (AA)
Aluminum Giant Alcoa Announces Surprise Profit
Back in January, investors were stunned when Alcoa posted a quarterly loss for the first time in six years. The company followed suit for the next two earnings periods as well, unable to post a profit, and this quarter was suspected to be no different. So when Alcoa reported their third quarter earnings yesterday evening, everyone who was expecting another loss was instead pleasantly surprised at the news of an unexpected profit! How was the company able to turn things around in less than a year, and what are the company's expectations for the future?
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Analysts had been expecting Alcoa to report a loss equivalent to 9 cents per share - a significant improvement from January's loss of $1.49 per share, but a loss nonetheless. But instead, the company reported revenue of $4.62 billion, and a profit of $77 million, or 8 cents per share. Even after excluding some one-time items, the company was able to report a profit of 4 cents per share. In this situation, it doesn't make sense to simply compare the current numbers with the previous year's $7 billion revenue and $268 million profit, because so much has changed since that point.
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A profit of 9 cents per share wouldn't necessarily be impressive on its own, but in this situation it speaks to how hard Alcoa has worked to turn the company around. The company's $1.2 billion loss in January was due to a decline in sales, and a decrease in the price of aluminum, on top of an overall difficult economy. But when the company came to terms with these numbers, they immediately developed a plan for how to overcome these obstacles. The plan included reducing three main things: the number jobs, the degree of production, and the amount of capital spending. With a significant amount of cash in hand, and minimal debt, the company was in a decent financial situation to make these changes.
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And that's exactly what happened. Alcoa was able to implement extreme cost-cutting measures, which was a significant factor in turning the company around. The company cut approximately 20,000 jobs and had significant savings in the areas of overhead and procurement. There was a little bit of help from the economy as well, as demand and aluminum prices both slightly improved, and Alcoa has projected that aluminum consumption would rise 11% in the second half of the year, partly due to global growth in countries including China. CEO Klaus Kleinfeld reported optimism for Alcoa's performance in upcoming months. Investors have cheered this good news from Alcoa, and are hoping that this report, the first Dow Jones component to report Q3 earnings, points towards a strong third quarter for the rest of the market. But no matter how the rest of the index performs, Alcoa has proven that it is possible to overcome the obstacles of this economy.
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Alternative Views of Alcoa:
Alcoa's disappointment: Cost-cutting, not revenues, powered earnings - Although most investors have been thrilled with Alcoa's recent earnings report, why does this one author think economists will view it as a disappointment?
After Alcoa: Five Quick Takes from Analysts - How do these analysts, from Morgan Stanley, J.P. Morgan, and others, interpret this earnings report?
Alcoa, Mosaic and Potash: Beware the Buzz - This author looks at a few companies which have recently reported strong earnings, and digs a little deeper into some areas of weakness.
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More Stocks in the News:
An Ode to Pepsi Stock - As Pepsi (PEP: Charts, News, Offers) reports a 9% earnings increase, this author takes a look back at Pepsi stock over the last 15 years.
Marriott Swings To 3Q Loss On Timeshare Write-Downs - Despite reporting a third quarter loss, many are speculating that Marriott (MAR: Charts, News, Offers) has seen the worst, and are speculating optimistic futures for the hotel industry.
Retailers' Sales for September Only Reach 2005 Levels - As retailers such as Macy's (M: Charts, News, Offers) report earnings and quarterly sales, some are pleased that retail sales have continued to grow this year, while others face the realistic truth that sales are still significantly lower than previous years.
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Profile |
Click here to view a detailed profile of Alcoa.
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