The U.S. earnings season is off to a downbeat start, suggesting analysts were right in their sombre outlook for the fourth quarter.
Alcoa Inc. , the biggest U.S. aluminum producer, reported its first quarterly loss since 2009 after the close of trading in New York. Its fourth-quarter net loss of 3 cents per share, excluding restructuring charges, matched forecasts from analysts surveyed by Bloomberg.
As the first company in the Dow Jones industrial average to report quarterly results, Alcoa sets the tone not only for earnings in the U.S. raw-materials industry, but also across corporate America. The company gets about half of its $25-billion (U.S.) in annual revenue from the United States.
Analysts have recently been slashing their expectations for profit growth at Alcoa in particular and U.S. companies in general, believing that measures to boost efficiency were reaching their limits in the face of slackening global demand.
Fourth-quarter earnings per share at companies in the S&P 500 are forecast to rise 7.2 per cent on average, about half the increase expected at the beginning of the quarter, according to S&P.
“At first blush, it appears that the trend in earnings growth is beginning to slow dramatically,” Sam Stovall, chief equity strategist for Standard & Poor’s Capital IQ, said in a report Monday morning.
“But remember that early in each of the prior reporting periods estimates were an average 55 per cent below the final result,” Mr. Stovall said. “Applying that similar margin to this quarter’s results implies, but certainly does not guarantee, that fourth-quarter results could be up a shade more than 11 per cent, instead of the current 7.2 per cent estimate.”
Earnings at Alcoa have been squeezed in recent quarters by plummeting aluminum prices, soaring energy expenses and falling demand from Europe. Last week the company said it would slash its global aluminum-smelting capacity by 12 per cent to improve profit margins.
The loss last quarter was the result of “restructuring charges associated with the closure and curtailment of high-cost production capacity, lower aluminum prices, and continued market weakness,” Alcoa said in its earnings statement.
Raw-material stocks had the second-biggest drop last year among the 10 industries in the S&P 500, right behind financial companies. Prices of industrial metals from aluminum to zinc tumbled in 2011 because of expectations that global demand would fall amid slowing economic growth in the U.S. and China and a possible recession in Europe. Oil prices rose, boosting energy costs.
Shares of Alcoa plunged 44 per cent in 2011, the second-biggest decline in the Dow Jones industrial average. They had rebounded 9 per cent this year before the earnings announcement, and were little changed in after-hours trading following the report.
“The prospects for the shares depend on the outlook for the aluminum market,” Fraser Phillips, an analyst at RBC Dominion Securities Inc. in Toronto, said in a report last week. “We expect prices to remain under downward pressure as long as global leading indicators are declining. We expect rising costs will put downward pressure on margins.”
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