October 10, 2012
Right on schedule, last night aluminum titan Alcoa Inc. (AA) announced its third-quarter operating results, marking the official start to earnings season. And while Alcoa did manage to top estimates that called for a 100% plunge in earnings, the overall news was lackluster enough to send shares down about 4% by mid-afternoon.
In the third quarter, Alcoa's margins were hit by floundering aluminum prices and the company posted operating losses across its Alumina segment as well as its Primary Metal segment. Across all segments, the company reported a net loss of $143 million or a loss $0.13 per share. Excluding special items, adjusted earnings weighed in at $0.03 per share, which did manage top the $0.00 per share estimate. But thanks to the slowdown in China, Alcoa expects that the world will need even less aluminum than previously expected. Alcoa cut its forecast for global demand to 6%, down from 7%.
It's understandable that some would be tempted by Alcoa's 1.3% annual dividend yield, which is the third highest out of all aluminum companies. In fact, just a few weeks ago management declared a quarterly dividend of $0.03 per share to all shareholders of record on November 2.
But I must say that the payoff isn't worth it, quite frankly. In its industry, AA ranks towards the bottom in terms of sales growth, and just a quick look at its Portfolio Grader stock report page can show you just how weak Alcoa's fundamentals are. And with this latest earnings report, it's unlikely that Alcoa Inc. will shake off its sell rating anytime soon. Now if you're really itching to get into metals and mining, you can see that despite sector-wide weakness a few players are still pulling off decent fundamentals. Click here to see which stocks are highest ranked in my Portfolio Grader screening tool.