NEW YORK (TheStreet) -- Alcoa Inc. (AA) was falling 7.3% to $9.92 when the market opened on Friday after the company reported weak earnings for its most recent quarter.
The world's third largest producer of aluminum reported an adjusted net income of just 4 cents a share, which fell 33% below analysts' expectations. Aluminum prices declined overall in in the fourth quarter of 2013 and Alcoa answered this trend by growing its value-add business, which accounted for 57% of revenue in the fourth quarter.
The company also reported that it earned $1.1 billion in productivity improvements in 2013, but the lower prices largely eliminated those gains. Alcoa also anticipates a 7% growth in global demand for aluminum in 2014. The demand was also at 7% in 2013, but that did little to improve prices. Finally, the company notes 2% surplus supply at the alumina market and said several new factories will begin production in 2014, though other factories will also depart the market around the same time.
TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ALCOA INC (AA) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, impressive record of earnings per share growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, poor profit margins and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 116.8% when compared to the same quarter one year prior, rising from -$143.00 million to $24.00 million.
- ALCOA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALCOA INC reported lower earnings of $0.17 versus $0.52 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus $0.17).
- The gross profit margin for ALCOA INC is rather low; currently it is at 16.77%. Regardless of AA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AA's net profit margin of 0.41% is significantly lower than the industry average.
- Net operating cash flow has decreased to $214.00 million or 18.63% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: AA Ratings Report