News Column

Stellar Alcoa earnings sparkle

July 8, 2014

By Matt Krantz, @mattkrantz, USA TODAY

Alcoa unofficially kicked off earnings season with gusto Tuesday, delivering second-quarter results that smashed expectations.

The aluminum giant reported an adjusted quarterly profit of 18 cents a share, 50% more than expected. The news boosted shares 2% in after-hours trading.

Positive profit news from an industrial mainstay is a big comfort to U.S. investors in general, who have been hoping for a resumption of earnings growth in the second quarter. A big profit beat like that at the start of earnings season supports the optimism that there might be enough underlying earnings growth to justify the stock market's march to new highs this year.

On Wall Street, Alcoa's profit report has long been considered the start of earnings season because it had been the first of the 30 companies in the Dow Jones industrial average to report results. That was until last year, when the stock was ejected from the Dow industrials. But getting dumped from the Dow didn't change Alcoa's status as the opening bell for the deluge of quarterly profit reports about to start.

It was an important quarter for Alcoa because it marked the company's return to the black. Including all charges, the company earned $138 million or 12 cents a share during the quarter (the adjusted 18 cents-a-share figure excludes charges). That reversed a $148 million loss in the same period a year ago. Revenue also surprised: $5.8 billion, 2.6% higher than expected.

"Great quarter, guidance reaffirmed and overall business doing well," says Bill Selesky, analyst at Argus Research in an e-mailed response. The metals unit is benefiting from the winding down of its costly smelting practices, says Andrew Lane of Morningstar. This lets Alcoa boost profitability in selling primary metals despite an 11% decline in production from year-ago levels, Lane says.

Analysts are calling for more than 6% earnings growth from companies in the Standard & Poor's 500 index in the second quarter, says S&P Capital IQ.

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Source: USA Today

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