Alcoa Posts Loss in Line with Forecast

The largest aluminum producer in the U.S., Alcoa (NYSE: AA) kicked off the 2012 earnings season by posting a loss of $0.03/share in the 3th quarter of 2011.  This was in line with estimate revisions in light of the company’s announced 12% contraction of its production capacity, including permanently shuttering a smelter operation in Tennessee.   They will be cutting back production at facilities in Texas, Italy and Spain as well.

The loss stemmed from a sharp decline in aluminum prices in 2011.  The company guided that they believe the price slide is over and they should see small increases in both price and demand in 2012.  Their forecast for a doubling of aluminum demand through 2020 remains intact.

The big bright spot in the report was their revenue statement.  Top line revenue was $6 billion, beating the estimates of analysts by 5%.   This was done in the face of a 6% decline in the realized price of aluminum in the last 3 months of 2011.

With demand strong and their orders for material steady, this story boils down to a commodity price squeeze on margins.  By streamlining operations Alcoa is hoping to be well-positioned even if prices do not improve.  If these prices persist through 2012 it will drive some supply out of the market.

Alcoa’s stock was up in after-hours trading to $9.48 per share.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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