AA Can't Shoot Straight

For Rothbort's preview heading into the Alcoa conference call, please click here.

Alcoa's (AA - commentary - Cramer's Take) earnings really smelt (pun intended). Yesterday's earnings release and conference call are prima facie evidence of why I placed Alcoa into my inaugural list of the worst-run companies in the U.S.

Alcoa has managed to bear the brunt of slowing demand, rising commodity costs and increased levels of inventory -- lose, lose, lose. Looking ahead, with the closing of a smelter, the company will not be able to fully benefit from the decline in energy and commodity costs. The automobile business is plain awful, and China is slowing down. The $1.2 billion joint investment with Aluminum Corporation of China (ACH - commentary - Cramer's Take), or Chinalco, in Rio Tinto (RTP - commentary - Cramer's Take) has already been written down by half.

If Alcoa was not such a running joke on Wall Street, and if the markets were not already in dire straits, then I think these lousy results would have a significant impact on trading tomorrow. Instead we will chalk it up to another botched up quarter by The Gang That Couldn't Shoot Straight (incidentally, a great book by Jimmy Breslin).

Alcoa reported EPS of 33 cents, including 4 cents per share of restructuring charges. Currency translation negatively impacted EPS by 6 cents on the quarter. Revenue of $7.2 billion was generated for the period. The restructuring charge was incurred for the curtailment of a smelting plant.

London Metal Exchange aluminum prices dropped nearly $1,000 per ton from their July 11 highs, to a low of $2,377 at the end of the quarter. The price dropped a record of nearly $700 from the end of second quarter 2008. Alcoa attributed this to three factors: the financial crisis, weakening end-market fundamentals and inventory builds.

Raw materials and input costs (coke, oil and electricity) continue to rise, and the impact of lower energy prices have yet to be realized. In the fourth quarter, Alcoa expects lower pricing, higher caustic costs and favorable currency benefits.

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.