Alcoa posts a surprise profit
ALCOA shares rose by around four per cent yesterday after the aluminium producer reported its first profit in a year in what Wall Street viewed as a bellwether of how industrial companies are recovering.
Five investment banks – Citigroup, Desjardins, UBS, RBC and S&P Research – raised Alcoa’s target stock price, a day after the company surprised the financial community which had expected it to report a fourth consecutive loss.
The stock rose 65 cents to $14.85 (£9.23) in early trading on the New York Stock Exchange yesterday.
Alcoa, the first member of the Dow Jones Industrials to report results for the latest quarter, attributed the profit to cost-cutting and higher prices.
The company, which has cut metal production by more than 20 per cent and cut its workforce by about 30 per cent since the economic downturn began a year ago, also said there were signs that key markets are stabilising.
Currently, analysts expect Alcoa to report a six cent per share profit in the fourth quarter and a loss of 83 cents per share for the full year 2009.
One analyst, Anthony Rizzuto of Dahlman Rose, revised his earnings estimate for 2009 to a loss of 81 cents a share from a loss of $1.10 per share. But he lowered his earnings estimate for full year 2010 to a profit of 35 cents per share from 50 cents a share.
“Given the aluminium realisation that the company experienced during the third quarter of 2009, we would have expected somewhat higher earnings, and free cash flow, but we believe that Alcoa continues to struggle with margins in its upstream and downstream businesses, given stubborn costs and weak end-market demand,” Rizzuto wrote in a research note.