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Digging Behind Alcoa's Optimism: Company Posts Second Lowest Quarterly CapEx Spend In Years

Tyler Durden's picture




 

For those computers that buy and sell stocks on a little more than just headline news, they may be interested to note just how Alcoa really feels about its business prospects. While the CEO of a company will always tout its prospects no matter what, after all just like CNBC, and bankers, they are only paid if growth continues, for a true glimpse of how the company is evaluating the future always look at its capex line: nothing else will provide as much information about a firm's view on organic growth IRR opportunities. And a firm that is retrenching, and thus conserving cash, is skeptical about the future, to say the least. Which is why one look at the Alcoa CapEx chart of the past 4 years shows nothing good: Q2 2010's CapEx number of $213 million was the second lowest number in many years, only higher than the $208 million in Capex spent during December 2009. In addition to CapEx, the chart below also shows Cash from operations. We will leave it up to the reader to decide if a business with $5 billion in quarterly revenue, and a market cap of $11 billion is justified in generating just $300 million in Cash from Operations.

Also, according to the management presentation, the company expects strength primarily in heavy truck and trailer, automotive, and beverage can packaging, with China supposed to be the lucky charm and stronger across the board. Well that last one is just a little questionable in light of the recent reduction in Chinese aluminum imports. As for using heavy trucks as a growth driver - good luck.

 

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Mon, 07/12/2010 - 16:59 | 465076 Teaser
Teaser's picture

Where is Gordon Gekko (Not our Gold bug, the real one) when you need him, he'd let everyone know that Blue Horseshoe loves Alcoa, slice it up into little tiny micro companies, make himself a few billion and get the economy going again.  SO much waste.

Greed is Good.

Mon, 07/12/2010 - 17:29 | 465125 Dr. No
Dr. No's picture

Gordon is paroled and back to business.  His potential new son-in law looks to rebuild Gekko's estrainged daughter's relationship and hopefully figure out how to get rich in the process.  Coming to a theater near you Sept 24, 2010. 

 

saw the trailer.

Mon, 07/12/2010 - 17:49 | 465158 SDRII
SDRII's picture

Note that AA also tapped the CP market; self liquidation

Mon, 07/12/2010 - 17:00 | 465077 Assetman
Assetman's picture

Yeah... but free cash flows are looking up.

Ha. Ha. Ha.

I can't wait to see what INTC's cap-ex numbers are going to look like.

Mon, 07/12/2010 - 17:01 | 465083 ZeroPower
ZeroPower's picture

Aluminum co's will be fine. CENX really nice name to play.

Mon, 07/12/2010 - 17:02 | 465084 Oso
Oso's picture

also, tax rate helped them "beat".  not awesome at all.

 

 

Mon, 07/12/2010 - 17:03 | 465086 SilverIsKing
SilverIsKing's picture

Sign O Tha Times

Mon, 07/12/2010 - 17:08 | 465092 wiskeyrunner
wiskeyrunner's picture

I think they will raise FY 2011 full year est. This way they can worm out of it in plenty of time. This is a classic game that is played, all the sudded they can see out 18 months hahaha like magic.

Mon, 07/12/2010 - 17:10 | 465093 Scooby Dooby Doo
Scooby Dooby Doo's picture

for a true glimpse of how the company is evaluating the future always look at its capex line

Yea ok. Brilliant. Maybe they are going to unveil a new way to make billions, blogging.

Mon, 07/12/2010 - 17:23 | 465113 lizzy36
lizzy36's picture

Why do you exist in this forum?

You are clearly not clever nor amusing.  So i am at a loss, to explain your presence.

Mon, 07/12/2010 - 17:27 | 465121 abalone
abalone's picture

Try clicking on the user profile? (access denied) What's with the political immunity?

Mon, 07/12/2010 - 22:03 | 465602 demsco
demsco's picture

Scooby, you truly are a douche bag. I have no idea why you are here. It is fine to disagree, but I have yet to see a coordinated argument from you.

Mon, 07/12/2010 - 17:12 | 465101 UGrev
UGrev's picture

slightly O/T. I used to work at an ALCOA plant. 90% of the people there were lazy, lazy, lazy ass union dip-weeds and practical thieves as well. This is what they do. They'll do 4 hour of work in 8 hours and then do 4 hours of over-time @ Time and half, to finish up the last 4 hours of work at regular time that they rolled over into OT. Scam the system.. this is all the unions do; And then the management takes a cut to satisfy the unions. ALCOA is one, giant, mis-managed company. They could double their profits overnight by dumping the unions and hiring people who are WILLING to work for the same amount of money and do the actual 8 hours of work in 8 hours (OT work would be a bonus then). 

Mon, 07/12/2010 - 17:23 | 465114 lettuce
lettuce's picture

sounds like any big company. but always nice to hear the inside scoop, for sure.

 

f'ng unions. what is it, 1875 still, when they were actually useful? my favorite union is the teachers' union -- that's right, idiots that are too stupid to keep a teaching job are educating [y]our children... and we can't fire them for being horrible educators. death cross!

Mon, 07/12/2010 - 18:32 | 465243 New_Meat
New_Meat's picture

@lettuce,

We've been blessed to be in a town that doesn't fully subscribe to the NEA.  But we're close to Central Falls, RI.  They, in the face of tremendous adversity, did, in fact, bring their little system down.  They laid off all of the failed high school teachers.  ALL of them, but then they could re-apply for their jobs.  Wow, like the dreaded private sector.  Costernation!! Pandemonium!!! But the RI pols stuck it-good on 'em.

http://www.projo.com/education/content/central_falls_teachers.1_02-13-10...

And if the NEA were measured on output like the dreaded private sector, well, if they had honor, then they should ...

sorry, dreamin'

- Ned

Mon, 07/12/2010 - 19:16 | 465311 it aint paranoi...
it aint paranoia if they really are out too harm you's picture

and we can't fire them for being horrible educators. death cross!

 

+1

 

When can we expect "death cros" to become used in every day conversation?  lots of potential.

 

Cleveland Cavaliers- death cross

 

Lance Armstrong-  death cross

 

Chicago Cubs-  "Death Cross since 1908"

Mon, 07/12/2010 - 17:12 | 465102 Verbal Kint
Verbal Kint's picture

last 4 quarter capex is down to 42% of the preceding year.

Mon, 07/12/2010 - 17:16 | 465106 buzzsaw99
buzzsaw99's picture

An $11B market cap with $10B in debt. Their whole company is just a rounding error on a TBTF's books. Totally irrelevant.

Mon, 07/12/2010 - 17:19 | 465108 firstdivision
firstdivision's picture

I love how they said India will be a +14%.  I take it that was projected before todays headline. 

Mon, 07/12/2010 - 17:23 | 465112 Howard Bork
Howard Bork's picture

The math doesn't even make much sense.  How can Heavy Truck and Trailer grow 12%-15% if N. America, Europe, and China are each up only 10-15%?  Perhaps there is a hidden "All other" category that is projected to grow 140%.

Mon, 07/12/2010 - 17:25 | 465119 lettuce
lettuce's picture

QE^3 category

Mon, 07/12/2010 - 17:28 | 465123 Howard Bork
Howard Bork's picture

I meant to write "How can Heavy Truck and Trailer grow 12-17%".  There is clearly some problem with AA's numbers here.  It just doesn't foot any other way.

Tue, 07/13/2010 - 08:33 | 465992 Boilermaker
Boilermaker's picture

Exactly...no fucking way.  I work closely with Cummins, CAT, Volvo Global Truck, and Detroit Diesel.  Again, no fucking way.  Once more, no fucking way.

Tue, 07/13/2010 - 07:54 | 465951 Chemba
Chemba's picture

Trailers for federal reserve, to be used to ship cash by truckload into town squares all across America

Mon, 07/12/2010 - 17:37 | 465115 NOTW777
NOTW777's picture

futs getting juiced on the LOL, "bullish" beat;

tim seymour exuberant; finerman - "tons of value"

Mon, 07/12/2010 - 17:27 | 465122 NOTW777
NOTW777's picture

reduced headcount by 37000 - yeah, they must be growing

Mon, 07/12/2010 - 17:34 | 465128 TooBearish
TooBearish's picture

I wld like to see these Fast money Peps P&Ls looks to me they do a lot of retail type trading - buying strength and selling weakness....

Mon, 07/12/2010 - 17:46 | 465133 virgilcaine
virgilcaine's picture

Nice co. but  no need for its products.   Dec /Jan time frame  is the 'invisible wall' Greenspan mentions .

Mon, 07/12/2010 - 19:18 | 465322 it aint paranoi...
it aint paranoia if they really are out too harm you's picture

Love the avatar

Mon, 07/12/2010 - 17:54 | 465171 scriabinop23
scriabinop23's picture

Low capex is a great sign for long term margins.  It means less supply glut down the road in a lower demand environment.  And in a higher demand environment, it means profit.

 

Better yet, cap utilization is 65-70% right now.  They have plenty of headroom right now.

 

Mon, 07/12/2010 - 18:00 | 465183 SDRII
SDRII's picture

That all depends on where you size the market and where you fall on the cost curve. They also have $9B in debt

Mon, 07/12/2010 - 20:19 | 465445 Implicit simplicit
Implicit simplicit's picture

Its a no confidence vote on a robust future. They are hunkering down like all the other companies hoarding cash for the crash.

Mon, 07/12/2010 - 18:16 | 465216 Boilermaker
Boilermaker's picture

Hey, look, my employer supplies parts to both heavy truck and automotive to nearly every OEM (Ford, GM, Chrysler, PACCAR, Cummins, CAT, Detroit Diesel, et al).

To say that their is going to be double digit growth is a fucking joke, especially in heavy truck.  Freight miles are in the toilet and the EPA just passed their emissions for 2010 in January this year (which causes a huge 'pre-buy' to grandfather the engines).

I don't know anybody that is predicting that growth.  That's flat out bullshit.

Mon, 07/12/2010 - 19:36 | 465360 Hansel
Hansel's picture

I was just looking through CSX quarterly report and they claim automotive volumes were up 63% last quarter yoy. Got an opinion on that?

Mon, 07/12/2010 - 20:41 | 465471 Boilermaker
Boilermaker's picture

Yea, sure, last year Q2 was when production was shut down at Chrysler and GM.  I don't doubt the YoY increase but that's a bizarre way of looking at it.  When you make nothing to making something at all then the jump in % is huge.  Also, GM, Ford, and Chysler (don't know about the Japanese transplants) didn't have a summer shut down this year which is typically 2 weeks.

Also, don't forget the uber-popular cash-for-clunkers last year in Q2 which depleted inventories.

What I can tell you is that our order books aren't any better than they were pre-crisis and the SAAR is still around 10M and inventories at the dealerships is increasing.  In other words, they are back to building more than they sell.

I want it to be true, for sure.  But, it isn't.

Look at how GM spins their sales.  They only report increases of the existing brands (thereby discounting the loss of Saturn and Pontiac).  Sales are down when you look at GM vs. GM.  They only look 'better' when you look at new GM (Chevy, Caddy, Buick) vs. old GM (Chevy, Caddy, Buick, Pontiac, Saturn).  But, the absolute numbers look like shit.

Chysler's sales are predominantly fleet vehicles which have very little or negative profits.

Ford...well, FMC is a bit different as they are the 'winner' of the big 3 and took some of the fallout from the Toyota shitfest.  But, they aren't healthy either.  Look at their balance sheet.  They leveraged literally everything they owned prior to the credit crisis (down to the logo).  They still down actually own anything and have an enormous debt load.

Anyway, things aren't roses, gum drops, and puppy dogs in Detroit.  Just because we aren't hiding under our desks with shotguns now doesn't mean that the industry is doing better and gathering steam.  It just means we are drowning slower.

Mon, 07/12/2010 - 18:42 | 465259 Gimp
Gimp's picture

All I know is I have been burned with this stock in the past - on my stay away at all cost - list.

I am sure CNBS will be giggling like schoolgirls tomorrow with all the excitment from AA.

Mon, 07/12/2010 - 19:14 | 465314 Dburn
Dburn's picture

I remember last year they had a surge even though sales were down 50% over 2008 in Q2, but an improvement over q1 of 2009. They warned any gains were made through cost cutting. This year they are up to 52% of 2008 and they say things are improving. It may give investors/betters more "color" is they are forced to release their pre-recession numbers out with their current numbers so people can see how big of a hole they are digging out of and how long it will take, if ever, to get back to pre-recession numbers.

Those gross margins are scary too with the volume as low as it it is. I have no clue why people get excited about this company. In January they traded up to $17.30 . I shorted them after earnings and it was a good one. One of the few I've made. Now we see how these affairs are hyped up. I suppose this calls for a large bonus that they didn't go under last year's number.

Mon, 07/12/2010 - 19:26 | 465341 willien1derland
willien1derland's picture

Thank you Tyler - Great Analysis & Great Feedback - Learned an incredible amount in a very short time - Greatly appreciated Folks!

Mon, 07/12/2010 - 21:45 | 465579 No More Bubbles
No More Bubbles's picture

Last quarter people were bullish on AA and got smashed buying calls.  This time people are bearish on it with the stock 40% lower, so the scumbag wall street scumbag pigs will pump it up now.  Probably won't top $13 though.....

Mon, 07/12/2010 - 22:33 | 465637 doolittlegeorge
doolittlegeorge's picture

aren't you all a little grumpy.  what's that old saying?  the only thing worse than no bad news is no news at all?  obviously AA is going to surge tomorrow because, well, it's called "fuel economy."  clearly "the dumb public school teacher" thing goes WAY back.  "aluminum" for Class ZH reduces something called "weight" and retains another thing called "strength" and indeed some have said "it even increases strength even though it is lighter" which of course as a former public school teacher we all know is impossible--isn't it kiddies.  (insert "ho, ho, ho" and "heee, heee, heee" here.)  oh, yeah--and i hear there's an issue about "increasing fuel economy in Class A trucks" which the Adminstration wrung out of the trucking industry a few weeks back.  And I thought my misspent youth caused a few memory glitches...

Mon, 07/12/2010 - 23:01 | 465675 Iam_Silverman
Iam_Silverman's picture

So, are you predicting aluminum frames now on class 7 and class 8 trucks?  Maybe a nice T-6 series extruded box channel?

I wonder why that isn't the norm now?  Did we just always want to build heavy trucks that use more fuel and don't enhance the O/O bottom line?

Oh, and as a former public school teacher, did you ever notice that most questions end with a symbol such as "?"?

"which of course as a former public school teacher we all know is impossible--isn't it kiddies. "   <-?

Tue, 07/13/2010 - 02:21 | 465852 Lucky Guesst
Lucky Guesst's picture

OK, I'm going to get slammed for this BUT....... maybe they are so sure of their future profits because Chairman and CEO Klaus Kleinfeld was told how well Alcoa's future was going to be at this years Bilderberg meeting. He is listed as an alleged attendee.

http://www.prisonplanet.com/bilderberg-2010-final-list-of-participants.html

Tue, 07/13/2010 - 05:35 | 465897 Itsalie
Itsalie's picture

Look at slide 13, working capital increasing at feverish pace last 2 quarters; problem collecting receivables, more unsold inventory, or perhaps some capitalisation of expenses misleadingly classified as working capital, or ... who knows? Someone has the full balance sheet pse post the link here. Thks.

 

Tue, 07/13/2010 - 06:50 | 465919 MrTrader
MrTrader's picture

Trading alert : Alcoa strike 11 July calls volume leader on CBOE yesterday. Read : See Alcoa drop like a stone below 11.00 once market starts its regular session....Have fun trading. MrTrader

Tue, 07/13/2010 - 08:21 | 465977 BonaTesta
BonaTesta's picture

Keep digging for bad news. Always searching for the gloom and doom. What hapenned to you? I am tempted to start a blog called www.fullhedge.com and the topic would be "only the bright side of things". Since you are sometimes right, sometimes wrong, thenI would probably match you. Why are Jews always so negative? A mistery to me...

Tue, 07/13/2010 - 08:36 | 465999 Boilermaker
Boilermaker's picture

Why do that when www.cnbc.com already exists?

Tue, 07/13/2010 - 08:48 | 466013 SheepDog-One
SheepDog-One's picture

I dont see much of an Alcoa pump yet, for all the hoopla its up .30 cents pre market? Big deal.

Sat, 08/14/2010 - 10:58 | 521651 herry
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