Alcoa's 2Q earnings better than expected, is the recovery on?

Ring the bell, sound the trumpets, bang a gong, whatever you do to signal that earnings' season has begun, because Alcoa (AA) has reported second-quarter earnings and the game is on.

The metals firm reported a quarterly loss of 26 cents per share (excluding restructuring charges), far better than the consensus estimate. Sales came in stronger than expected as well, with the company selling $4.24 billion of product. During the previous two quarters, AA lost nearly $1.7 billion, so one cannot fault the Street for its expected loss of 39 cents per share with sales of $3.93 billion.

Just yesterday, three analysts changed their outlook. Two of those analysts upped their outlook (and now look like geniuses) and one shifted the forecast lower. Perhaps this was in reaction to AA's CEO Klaus Kleinfeld's assertion that "China is out of the woods and growing, particularly in its automobile and commercial-building and construction markets."

Some analysts took this statement as a hint that second-quarter results would come in stronger than expected while others believe that it foreshadowed a stronger-than-expected third quarter. As for the third quarter, Kleinfeld believes, "Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry."

What should we expect tomorrow? Best guess is that Alcoa finishes higher amid a bit of earnings-based euphoria. Can it last? Of course, this is yet to be determined, but I am a bit concerned about the rallying cry about how good the results are, especially in light of the International Monetary Fund's assertion that the economic recovery will be sluggish. Let's not forget that the company posted a profit of 66 cents per share a year ago, when the economic recovery was supposed to be on the horizon.

I am not trying to play the role of the resident bear, but I am not sold that a company reporting a smaller than expected loss proves a full-fledged recovery is in the cards. A loss is a loss is a loss -- or, as athletes say, it is what it is. Let's just see how the market reacts tomorrow.

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