Alcoa (AA) Can’t Wait

Alcoa (AA) kicked off what I expect will be a tepid, though not disastrous, round of quarterly corporate earnings reports yesterday, taking its usual spot as the first member of the Dow Jones Industrial Average to give its results.

How does Pittsburgh-based Alcoa, the largest U.S. aluminum producer, get the word out so consistently fast? And why does it go to the trouble?

It certainly isn’t easy. The company operates in 44 countries (with varying accounting rules) around the globe, in an industry with a lot of financial reporting complications: fluctuating commodity and inventory values, volatile currency exchange rates, complex hedging transactions, and large commitments for energy consumption and capital investment, to name a few.

Yet, writer Jill Jaracz reports, the company closes its books in just one day at the end of each quarter. Financial staffers work through year-end holidays and the Fourth of July weekend to get the numbers to analysts on the second Monday of the each new period.

And then, with its financial past behind it, Alcoa looks to the future.

So much for the stereotype of the ponderous old-line industrial corporation, and one from Pittsburgh, no less. Like Pittsburgh itself, whose business community has moved well past its heavy-industry history (even though the city struggles with a shrinking population), Alcoa tries to keep looking ahead. Its well-remembered slogan “Alcoa Can’t Wait” comes from an advertising campaign that was popular during my 1970s youth.

Jaracz credits Paul O’Neill, who was Alcoa’s CEO from 1987 to 1999, with taking the let’s-get-on-with-it approach from slogan to financial reporting reality. Yes, this is the same Paul O’Neill who became President George W. Bush’s first Treasury Secretary in 2001, and whose forthrightness even when he disagreed with administration policy led him to exit that position less than two years later. Former CEOs, who are used to having the last word, do not always make good deputies.

Alcoa’s current crop of leaders apparently sees ongoing value in O’Neill’s approach, since they continue to crank out those rapid-fire earnings reports quarter after quarter.

It just so happens that Alcoa is a pretty good choice to give us our first peek at how corporate America has fared in the recent past, and its forecast for the current quarter is likewise a useful baseline.

The company draws its sales about evenly from domestic and overseas markets. Its primary products are important in the economically vital housing and transportation sectors. Aluminum prices tend to move with economic cycles.

Alcoa itself is only the third-largest global aluminum producer, after Canada’s Rio Tinto Alcan and Russia’s Rusal, but it is well-managed and well-diversified – and it is the first to report its results. So it gets a large share of attention, perhaps even more than its economic importance warrants.

The just-ended quarter began on a high note, on the heels of strong corporate earnings in the January through March period and with optimism for a relatively quick rebound in the U.S. economy. But April through June was a tough three months. Domestically, business managers were dismayed by the health care legislation that passed in March. The legislation’s passage was quickly followed by renewed government sniping at Goldman Sachs and other politically convenient Wall Street targets. The BP oil well exploded in late April, creating a sense that all sorts of events were spiraling out of control.

In the meantime, Europe’s sovereign debt troubles reached a peak in May, sending financial markets and the euro’s value sliding. The pace of private-sector hiring in the U.S. promptly slowed as managers hedged their bets against mounting uncertainty.

Things are looking a bit calmer recently. Europe’s various plans to rescue government finances have boosted confidence along with the value of the euro. The currency has rebounded from May lows of about $1.18 to near $1.26 this week. That is a level that is still low enough to give a boost to Europe’s healthier manufacturing economies, notably Germany’s, without fueling fears that the currency union might dissolve. Germany’s unemployment rate, at 7.7 percent, is considerably better than the latest U.S. reading of 9.5 percent. Better European performance, in turn, means better prospects for American and Asian companies that sell to customers there.

On balance, the news, while not great, is better than it was one or two months ago. A little luck and a little restraint from business-hostile elements in Congress and the Obama administration might allow things to continue improving for the rest of the summer.

For the record, Alcoa reported that it earned 13 cents per share in the second quarter, beating most analysts’ estimates but well below the quarterly earnings rates it posted before the recession took hold in 2008. As I said, tepid but not disastrous – and a lot better than the darkest days of the recent past.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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