Economic Bellwhether Alcoa Is Expected to Post a Small Profit

Aluminum giant Alcoa (AA) is expected to report a small quarterly profit when it unofficially kicks off earnings season after Monday's closing bell, but the sluggish pace of global economic growth could weigh on the Dow component's results all year.

With its products used in everything from aerospace to vinyl siding, Alcoa is seen as a bellwether for broader economic activity. That's why it's somewhat reassuring that analysts, on average, expect the company to post first-quarter earnings of 10 cents a share, according to data from Thomson Reuters.

Worry Over Aluminum Prices

The figure is a big improvement from last year's deep loss of 59 cents. (The aluminum company missed the Street's estimate by a nickel a share last quarter.)

Revenue is expected to increase 26% to $5.29 billion, from $4.15 billion in the year-ago quarter, helped by a recovery in aluminum prices. But of more concern is where demand and prices are headed, analysts say. After topping out at $3,380 a tonne in the summer of 2008, aluminum prices have tumbled, then recovered -- but still stand about 30% below that peak and have been essentially unchanged for months.

"During [the first quarter], the price of aluminum started the quarter strong, but declined due to concerns over sovereign debt within the EU, and then strengthened at the end of the quarter on higher demand," says Desjardins Securities analyst John Redstone in a note to clients.

Analysts' Caution

On Friday, analysts at J.P. Morgan (JPM) downgraded shares in Alcoa to neutral, from overweight, citing weak aluminum prices, among other concerns.

"Although Alcoa has taken significant costs out of its business by closing high-cost operations and through additional procurement and productivity savings, we think it will still struggle to generate attractive returns at our strategist's 2011 aluminum price forecast," wrote analyst Michael Gambardella.

Earlier in the week, Deutsche Bank (DB) cut its rating to hold, from buy, amid concern Alcoa's bottom line would be hurt by a series of "one-off" costs.