Normally the quarterly earnings of US companies don’t matter much to us in Australia, except as an indicator of the health of the US or global manufacturing, finance (in the case of banks), media and tech (Apple and Netflix for example) or as a guide to demand.
Alcoa is no longer a Dow stock – it was dethroned a year or more ago because of its weakening position, but it’s quarterly releases mark the start of each earnings season and given that it is still a global giant, it’s results do tell an important story.
The March quarter report from Alcoa this morning is a case in point (as will be the quarterly reports from a number of leading US banks, starting tonight, our time). The Alcoa report tells us that US manufacturers are going to be reporting some poor results in coming weeks – look for the releases from giants like GE, Honeywell, Rockwell International.
Alcoa said revealed a few hours ago that that its March quarter sales and profits fell sharply and the company has plans to cut even more jobs on top of the thousands already removed in the past couple of years.
Alcoa posted a profit of just $US11 million in the first three months of 2016, down from $US255 million in the same period in the year prior. Adjusting for one-time items earnings of 7 cents a share, topped estimates for 2 cents, but that’s a crock because it is an estimate constructed to be beaten after being lowered by analysts.
The big standout from the result was a 15% plunge in sales for the quarter from the first quarter of 2015 to a still considerable $US4.95 billion. That’s well under market forecasts (reduced considerably) of $US5.2 billion. Alcoa said it had cut 600 positions in the first quarter and expects to cut another 400 jobs, and was looking to increase that by another 1,000 positions.
In September, the company said that it was splitting into two, with an upstream business that includes its smelting operations, and its downstream operations, which are focused on the units that make metals products for industry, such as aerospace and cars.
The latter will be built around its Arconic downstream business. Sales there fell 2.2% to $US3.3 billion, thanks to weak demand and the impact of the stronger dollar
Revenue in its upstream metal-based business slumped more than 32% to $US1.7 billion, driven by an 18% slide in world alumimium prices, the higher dollar and weak demand compounded by the aggressive manufacturing and sales policies of Chinese smelters.
Alcoa shares fell nearly 4% in after hours trading on the worse than expected numbers.The shares are now down 4% so far this year and around 30% in the past year.
