Alcoa (AA) Conference Call Notes

July 9, 2009 11:31 am

After the close on Wednesday, Alcoa (AA) released earnings and it was a mixed in that while they beat estimates, the actual results were horribly poor.

Notes:

Both and uptick from higher aluminum prices and cost saving helped them this quarter. Cost cutting was the means to the end, the same way to corporate profitability we saw in Q2.

Income improved and COGS improved as well. Revenue came in higher than last quarter. This is a good sign that there are some sales going on and while it is still a significant drop from past reports, it is a good sign that there is some activity (even if most can be attributable to China)

Streamlined operations are a big part of their game plan (layoffs). In fact, management stated that 75% of the job cuts are are permanent. (STOP… Read that again: The 75% reduction of workforce is seen as permanent!)

Record production in Iceland and Norway helped to increase smelting output. Again, these are areas that have low costs for manufacturing, though have high levels of natural resources.

There were reductions in almost all segments as demand continues to be weak. In fact, we saw 50% YOY reduction in demand in domestic vehicles and commercial vehicles. This type of drop was consistent over all of the sectors with the best showing a 40% drop.

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Outlook: Grow in market shares, continue to keeps costs down.

The chart shown below is interesting as we see that Alcoa fell in unison with the materials sector of late. Still down 70% since the high, Alcoa saw a 4% spike after the news broke. Interestingly, the shares were halted until 4:15pm. Just for clarification, Equity Futures markets are open through 4:15pm and then close until 4:30pm, when the re-open for the evening session.

So, it appears that Alcoa was important enough to move markets and the powers that be thought that futures could have been easily “moved” after the initial announcement. Therefore, allowing the information to be held until the futures markets closed was done to ensure that the data was able to be consumed and filtered correctly before the futures markets could react in a way that would rock entire markets. Specifically, this is due to the lack of liquidity in the after-markets and the opportunity for large players to “move” futures market dramatically.

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The chart is clearly weak as Alcoa shares are below the 20 and 100 day EMA. Even with the pop in after hours, shares stalled at the 100 day EMA. Also, the 200 day moving average is falling and now rests are $9.86, again the price close in after hours trading. Essentially this means that former support seen earlier in the month has now become important resistance.

The real question is whether investors will see the unsustainable cost cutting factors and managements thought of an improving global outlook as reason enough to bid up shares beyond the initial reaction. If they do, it appears that the $10.25 – $10.50 level could be the near term top as there is plenty of resistance.

Disclosure: Horowitz & Company clients do not hold shares in stocks mentioned as of the publish date.

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