Alcoa Shares Claw Out of the Crater - TheStreet

NEW YORK (

TheStreet

) --

Alcoa

(AA) - Get Report

shares rebounded slightly Wednesday in heavy trading after the previous session's selloff, when investors took the stock and crumpled it against their foreheads, beer-can-wise, frustrated by a disappointing fourth-quarter profit.

Alcoa shares were trading midday Wednesday at $15.86, up 34 cents, or 2.2%, on volume of more than 33 million shares, already surpassing the three-month average daily turnover in the name. The stock had touched a 52-week high of $17.60 intraday Monday, ahead of the company's quarterly report, only to tumble 11% Tuesday.

That drop was likely overdone, many analysts say, especially those who believe aluminum prices on the commodities exchanges will continue to rise in 2010. (In general, many investors are betting that commodities prices will increase this year as the U.S. dollar weakens amid the specter of inflation.)

Other factors peculiar to aluminum

are also supporting the price of the metal, observers say.

Still, for a multinational corporation, a weaker dollar would create a drag on profits, and analysts are careful to point out that Alcoa, with its smelters in Australia, Brazil, Canada and Europe, will have this headwind to contend with throughout 2010.

As such, some analysts trimmed their profit estimates for the company. Lloyd O'Carroll, for example, an analyst at Richmond, Va.'s Davenport & Co., cut his 2010 per-share earnings target to 82 cents from $1.03.

But the range of estimates from the sell side is wide. Anthony Rizzuto, of Dahlman Rose, lifted his 2010 EPS target to 50 cents from 35 cents based on a rejiggering of his forecast for aluminum prices, which he now believes will average $1 per pound this year rather than his earlier expectation of 85 cents.

The first Dow component to report earnings each quarter, Alcoa reported after the closing bell on Monday that it had eeked out an adjusted per-share profit of one cent, which excludes a restructuring charge of 28 cents a share. Analysts were expecting 6 cents a share, according to a survey by Thompson Reuters.

Though aluminum prices have spiked in recent months, analysts were expecting that rise to help the company's results to a greater degree. "We remain concerned that the company's primary aluminum business exhibits less leverage to the metal than in the past," Dahlman Rose's Rizzuto wrote in a note to clients Tuesday.

Still, Alcoa's earnings were better than the fourth quarter of 2008, when the company lost $929 million, or $1.16 a share.

Revenue in the quarter amounted to $5.4 billion, down slightly from the $5.7 billion top line posted a year ago, but surpassing the consensus forecast of $4.82 billion.

Including all the special items, Alcoa lost $277 million, or 28 cents a share, in the fourth period.

Alcoa's results -- along with a strengthening U.S. dollar, which makes commodities less appealing to investors -- appeared to put pressure on cyclical and commodities-related stocks across the board Tuesday.

Alcoa's prepared CEO statement Monday contained the predicable bright side: "This was a tough year for the aluminum industry -- a price crash, demand destruction, and credit crunch. Yet, today Alcoa is stronger than when the year started," Alcoa boss Klaus Kleinfeld said in the company's press release.

As proof of that stronger position, Kleinfeld cited stronger cash reserves and severe cost cuts -- Alcoa laid off some 13,000 workers, slashed overhead by $412 million and reduced capital spending by 50% in 2009.

Indeed, Alcoa's finance chief, Charles McLane, said in a post-earnings conference call that Alcoa preserved more cash than perhaps many observers were expecting, leading to the worse-than-anticipated profit.

Among Alcoa's major business units, the "primary metals" segment saw sales rise to $1.9 billion from $1.58 billion in the year-ago period. Alcoa sold aluminum at an average price of $2,155 per metric ton during the just-ended fourth quarter. A year earlier, the average selling price was $2,125. Prices then cratered, dropping to between $1,500 and $1,700 in the first and second quarters of 2009 before going on a prolonged run as the year drew to a close.

In the fourth quarter, a weakening U.S. dollar clipped profits in its primary metals segment, Alcoa said. The European Commission also dinged the company recently -- to the tune of about $250 million -- by ruling that Alcoa had to pay higher electricty tariffs on its aluminum smelters in Italy.

Elsewhere, the company's aerospace, construction and gas-turbine businesses continued to erode. Sales in the engineered-products segment, which includes aerospace and construction, dropped to $1.1 billion from $1.4 billion a year ago.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.