Alcoa's Earnings Hit Paces the Dow
Earnings season started off well for the Dow Jones Industrial Average yesterday with Alcoa's beat, and the blue-chip index is back on the upswing today. Almost the entire Dow is in the green as the index pulls in gains of 85 points as of 2:20 p.m. EDT. Alcoa ranks near the bottom of the index despite its strong quarterly report, but several big movers at the top of the index are fueling Dow investors' optimism. Let's check out the movers and shakers of the day.
Alcoa's earnings highs and low
Aluminum producer Alcoa posted quarterly earnings per share of $0.07, beating projections by a penny. More pertinent, however, revenue continued to slide in line with an industrywide trend, down almost 2% for the quarter -- although it still narrowly beat analyst projections. The company's primary-metals business was the culprit behind sliding sales and stunted earnings, as the unit posted a $32 million loss that almost negated the profit posted by the company's other divisions. However, Alcoa still expects global aluminum demand to rise as much as 7% overall for the year. Shares haven't reacted so well today, however: Alcoa's stock is down about 0.3% so far.
Fortunately, Alcoa's pivot toward producing engineered products is paying off. With aluminum demand slumping and a glut of oversupply still keeping prices low worldwide, the firm's aerospace products business -- Alcoa makes various parts to use in planes -- has recently seen its backlog grow substantially and has helped buoy the company's earnings this quarter. Look for that trend to continue as the primary-metals market remains mired in its slump, which has forced Alcoa to close nearly 150,000 tons of smelting capacity so far in 2013.
The success of Alcoa's aerospace division is a good sign for the Dow's king of airplanes, Boeing . Boeing's shares are up 0.6% today as the momentum in the aerospace sector sends Boeing soaring. The company's backlog has swollen as orders pour in across the world, unfazed by the earlier grounding of the 787 Dreamliner jet and the recent crash of Asiana Airlines' Boeing 777. The company is increasing production to meet demand and continue deliveries of some jets, particularly the new 787, which is rolling out to more customers.
Not only is Boeing's success good for the company's shareholders, but it also could be a boon for Alcoa and other manufacturers. As Boeing and other aerospace players pick up production, the demand for aluminum airplane parts will increase. For Alcoa, that's one market where investors won't have to worry about waning demand.
Another manufacturer on the Dow is vaulting higher after Alcoa's earnings hit: Caterpillar shares have gained 3.2% on the day to lead the index higher. Caterpillar has suffered many of the same problems as Alcoa, with waning demand -- particularly from China and Europe, which are experiencing an economic slowdown and a brutal recession, respectively -- hurting the company's near-term outlook. Caterpillar's expectations of firm Chinese growth look lackluster at best now.
Caterpillar has made moves to maintain its top spot in manufacturing, notably acquiring Swedish propulsion and control systems manufacturer Berg recently. However, Caterpillar's fortunes are heavily tied to the health of the economy, so until the U.S. recovery progresses and China and Europe dig themselves out of their current holes, Caterpillar's outlook will remain gloomy.
Caterpillar, Alcoa, and other leading industrial firms are waiting with baited breath for signs of a stronger global rebound. China's slowdown and Europe's debt-fueled fiscal mess have plagued growth, but is a turnaround on the way? And, if so, what's the best way to position your portfolio its arrival? A new Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!
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