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Alcoa Earnings Beat the Estimates, What A Farce!

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    July 11, 2012

    During the 2nd quarter Alcoa warned several times and lowered its earnings guidance, and Wall Street lowered its estimates, as should be its reaction to the later information. The consensus estimate was lowered to 5 cents a share.

    The earnings were released last night, and surprise, surprise, they came in at 6 cents a share, “beating Wall Street’s estimates”.

    The stock rallied in after hours trading.

    And how great was the report?

    Alcoa actually posted a net loss of $2 million compared to a profit of $322 million (28 cents  share) in the 2nd quarter last year. And sales were down 10% from $6.59 billion a year ago to $5.96 billion in the 2nd quarter this year.

    But excluding ‘one-time’ costs like the $45 million cash charge to settle a bribery suit in Bahrain, the company was able to report a profit of $61 million, or 6 cents a share.

    Even that is an earnings decline of 78% from the year ago report.

    However, as is typical after issuing the dismal earnings report, the company said it has a positive outlook for future quarters, saying the company will capitalize “on accelerating demand in high-growth end markets such as aerospace and automotive.”

    And Wall Street is of course bullish on the stock.

    Meanwhile, Alcoa’s chart is interesting for a couple of reasons.


    The big holders of Alcoa stock were on top of the situation, selling relentlessly since the stock’s peak in April of last year, driving the price down more than 50%.

    But note the impact of each quarterly report “beating the street’s estimates” all the way down. The red X’s show the approximate releases of each quarter’s report.

    Each time the report ”beat the estimates” and the forward guidance expressed optimism that the problems were over and the future looked promising, the stock popped up, which allowed the institutions to unload more at a somewhat higher price, before the decline resumed.

    But since Alcoa has the distinction of starting the earnings reporting season, it is also important to try to make its reports look better than they are, to try to give a hopeful tone to the rest of the season.

    Good News From  Europe.

    At their meeting yesterday euro-zone officials agreed to give Spain an extra year to bring its budget deficits under control, and to provide 30 billion euros by the end of July to begin the bailout of Spain’s banks.

    The news has Europe’s markets rallying after four straight down days.

    Do You Know How Your Financial Advisor Gets Paid?

    From Morningstar Research with the above title:

    “In a recent discussion forum on Morningstar.com, posters shared a wealth of commentary on selecting a financial advisor. The thread pointed out, yet again, the mass confusion that confronts individual investors attempting to select an advisor to manage their money and otherwise look out for their interests.

    Would-be consumers of financial advice often hear they should inquire about the advisor’s compensation structure. But even that’s a mess.

    One key area of confusion? What it means to be a ‘fee-based’ advisor, versus one who’s ‘fee-only’ or ‘commission-only’. Some investors incorrectly assume that the presence of the word “fee” means that fee-based advisors are free of the conflicts of interest that can affect commission-based brokers. In fact, of the three major compensation structures for financial advice, only ‘fee-only’ advisors avoid commission-based products altogether, along with the potential conflicts of interest that business model presents.

    If you’re interviewing advisors, it’s reasonable to ask them to classify themselves into one of these groupings. And if an advisor refuses to detail compensation, or worse yet, says that their advice is free, that’s a huge red flag and you should find someone else.”

    Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area this morning, there is an in-depth ‘Gold, Bonds, Dollar, Commodities’ update in the subscribers’ area of the Street Smart Report website from yesterday. And tomorrow there will be an in-depth ‘U.S. Market Signals and Recommendations’ Report.

    To read my weekend newspaper column ‘Markets, Economies, Central Banks – All Out of Power’ click here.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!