Tuesday, July 13, 2010

Did Alcoa (NYSE:AA) Really Beat Expectations?

The idea that Alcoa (NYSE:AA) beat analysts' expectations is a joke, as just about a week ago some analysts lowered expectations to the point where there was almost a surety that Alcoa would beat them.

Original estimates from diverse analysts, had for the most part been from 15 cents to 19 cents earnings per share. So they were lowered, for some reason, just before the report, and voila, instantly they exceed expectations.

It seems original expectations should have been maintained, and then we would have seen the real performance of the company, which in reality missed those expectations by between 2 cents a share to 6 cents a share, depending on the above numbers.

So analysts lowering their numbers now make it look like Alcoa has outperformed. Take it with a grain of salt, because up to last week, the numbers would have shown they were far below estimates.

Alcoa Chairman and CEO Klaus Kleinfeld said this in a press release: “The top and bottom line growth was driven by higher volumes from stronger end markets and continued gains from our productivity programs. Based on this improved end-market demand, we are raising our projection for aluminum consumption from 10 percent to 12 percent this year.”

AS far as the actual numbers go, Alcoa's net income was $136 million, or 13 cents a share, up from last year's net loss of $454 million, or 47 cents a share.

Sales also increased by 22 percent to $5.19 billion for the quarter.

Although I like what Alcoa has been doing in cutting costs and preparing for increased sales in the future, I don't like how this has played out in relationship to the short term, which will remain under pressure, no matter how the numbers are massaged to make it look good.

Like I said, the major massage was in lowering expectations last week to the level where now the company looks like it outperformed for the quarter.

Short term be very suspicious of this, as nothing has changed but analysts pushing the numbers lower while Alcoa actually performed at the lower levels they had been looking for before last week.

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