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Alcoa Still Making Best of Bad Situation

Moving Forward

Growth has not come in sufficient quantities. But management remained upbeat about the company's prospects, saying that it expects 7% demand growth in aluminum for the fiscal year, consistent with Q4's guidance. Equally important was that management remained very confident about the aerospace and automotive sectors, which was previously guided for 10% and 4% growth, respectively.

The good news is, there wasn't much deviation from these projections, even though revenue arrived softer than expected. This is also encouraging because it maintains the growth potential from companies such as Ford (F) and Boeing (BA) that have started to use more aluminum in their vehicles and jets. But there are other growth opportunities.

Along with the company's strong packaging business, investors should be encouraged with the building/construction and industrial gas turbine segments that are both projected to grow at a rate of 5%. Likewise, demand could be on the way in areas such as appliances where names such as General Electric (GE) might become a significant consumer of aluminum.

Plus, when Alcoa reported on its fourth quarter, management had indicated that it expected China to account for roughly 50% the company's projected growth. While management is betting big on the Chinese economy, during the first-quarter conference call, this time the company spoke favorably about Europe. It's certainly encouraging that one of the most fiscally troubled regions is picking up strength. All of which points to a solid rest of 2013 for Alcoa.

Bottom Line

While there are still weaknesses in this business, it's hard to argue that this was an excellent quarter given the factors that management has had to work with. Productivity gains amid such a brutal aluminum pricing climate were also impressive. More importantly, management remains committed towards returning value to shareholders. And based on Alcoa's performance and growth outlook, investors should be optimistic about the company's future.

At the time of publication, the author held no position in any of the stocks mentioned.

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