The company managed to beat estimates of $0.06 by a penny. But as pointed out here, that is a far cry from the $0.30 expected in guidance from Q2 2012. Stock markets continue to focus on this ridiculous game of “beating” forecasts (from last week).
In terms of Alcoa’s place in the global economy, the commodity business lingers in dour trends. Global trade and manufacturing are way down and continue to depress, Alcoa’s headlines notwithstanding. The company stubbornly sticks with 7% demand growth for 2013, but that doesn’t square with reality in aluminum and alumina. Funny thing, Alcoa’s forecast for 2012 was exactly the same, as they noted almost exactly one year ago on July 10, 2012:
“Chief Executive Officer Klaus Kleinfeld reiterated Alcoa’s forecast for global aluminum demand to rise 7 percent this year and exceed supply. The company’s units that make the metal for customers such as Boeing Co. (BA) and Ford Motor Co. have seen higher profitability, helping to counter the weaker performance of its aluminum-smelting business. The primary metals unit posted an after-tax operating loss of $3 million after prices declined.”
Demand never quite exceeded supply, producing the very pricing problems that plague the earnings “beat” a year later.
In fact, if we zero in on just 2013, aluminum warehouse stocks just jumped by a huge amount.
Too much supply for shrinking demand equals lower prices (at least in markets outside of gold).
Aluminum prices are now where they were in the middle of 2009, not exactly a robust portrait for the industry. Despite persistently rosy forecasts, it seems Alcoa is actually admitting to over-capacity – and thus that global demand growth is both nowhere near pre-crisis levels and falling.
“In second quarter 2013, Alcoa’s net loss included $42 million in charges for the closing of the two Soderberg potlines at its Baie-Comeau smelter in Québec, which is part of the 460,000 metric tons of smelting capacity Alcoa has said is under review. The remaining previously announced charges associated with the closure will be recognized in future periods. In addition to the smelting capacity review, Alcoa also announced its intention to permanently close its Fusina smelter in Italy and recorded a $34 million charge.”
It seems these three closures are the first step in “reviewing” 13% of Alcoa’s smelting capacity. Given the state of the business outside the company’s press releases, there will likely be many more.
Regardless of the accounting/analyst dance to beat or miss earnings forecasts, the bigger picture is exactly what commodity prices have been telling us for some time now. Forecasts have been wrong and growth has not materialized as expected, and now companies are turning their attention to over-capacity as growth expectations are being forced (largely by pricing) to something closer to reality. It is most obvious in commodity-related businesses at present, but it eventually flows through into the rest.
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