Key to Alcoa's Latest Results: Cost Cuts, Downstream Investments

Alcoa (AA) kicks off earnings season on Wednesday when it reports its second-quarter results, but the company's long term outlook will especially be in focus as the company transitions from a focus on aluminum to becoming a broader, specialized metals firm. Morningstar (MORN) equity analyst Andrew Lane weighs in on how he believes the company's transition is progressing and, as Alcoa closes high-cost smelters and increases its focus on aerospace and meeting automotive demand, how much of a headwind the volatile aluminum pricing environment remains. Lane reveals two key aspects of Alcoa's earnings report that investors should be listening for. He says it will important to determine how effective the company has been in cutting costs for its upstream exposure. If Alcoa has been more effective in cutting costs than investors have anticipated, that could bode well for shares, Lane says, as the impact of lower aluminum prices has already largely been priced in. Lane adds it will also be important to gauge how much progress the company has made in its downstream investments.