Here Is Why Alcoa Just "Beat" Earnings

Tyler Durden's picture

Moments ago Alcoa reported adjusted earnings (because the unadjusted earnings were a disaster) of $76 million, or $0.07, on consensus expectations of a $0.06 print. In other words, a beat. So just how did the company beat its forecast?

Here's how.

Presenting the company's Q2 EPS consensus forecast over time in the short term:

And over the longer-term:

Summarizing the above:

  • A week ago AA was expected to make over $0.07 (or today's result would have been a miss)
  • A month ago: over $0.10
  • In January: $0.17
  • Just over a year ago: $0.30
  • In January 2011: Q2 2013 EPS was supposed to be almost $0.70 cents

So: from January 2011 to today, the company's "consensus" EPS forecast was revised from just under 70 cents to $0.06 cents. But hey: at least it "beat".

By the way, here is why the EPS number is absolutely meaningless: it "excludes" $244 million in restructuring charges - something which makes a complete mockery of both an apples to apples comparison, and also the company's tax rate. Of course, not excluding the restructuring charge from Net Income would have meant a $148 million loss. But at least Alcoa provisioned $21 million in income taxes in Q2...

As for what actually mattered, here are the highlights:

  • Revenue of $5.849 billion, down 1.9% Y/Y
  • CapEx $286 million, down 1.7% Y/Y
  • Free Cash Flow $228 million, down 7.3% Y/Y

But at least the company still sees a stable and growing China, expecting Chinese aluminum demand to rise 11% in 2013 versus 9% in 2012. Well, it's not like China is undergoing an unprecedented, historic deleveraging or anything so why not...

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azzhatter's picture

Set the bar on the floor and even the midgets can jump over it

CClarity's picture

"Roll" over it.  Even an infant can. Swaddled, at that!

Spider's picture

Check out AA's cash flows ... -$600 million for the 6 month period.  Only have 1.2 billion left or a little over a year at these rates.

YUCK - well at least they beat!

nope-1004's picture

This is new corporate America.  Forget making money, the objective now is to just fool everyone into 'believing' that you make money.


NoDebt's picture

And you would think with that kind of drop in expections that the share price would have been much higher a year ago, dropping as earnings and expectations dropped.  Nope.  Go pull up a 1-year.

SheepDog-One's picture

Oh no no....there will be no 'lower stock price' stuff on any DOW component!

Pladizow's picture

Fraud is Wall St. business model!

spine001's picture

Valuation of Alcoa using CAPM and cash flow model:

$228 million, down 7.3% Y/Y ==> CF = 228 M$; growth rate = g = -7.3%; Beta = 2.14; Market Premium = 7%; 10 Year no risk yield 2.7% ==> R = Beta * 7% + 2.7% ==> R =  17.68% ==> Valuation = CF/R => 228M$/0.1768 = 1.29 billion$. This doesn't take into account the debt tax shield and/or its capital structure, but not worth going through the trouble here. Nevertheless it gives us a starting point for comparisson for AA's value as an equity only company. Oh, by the way, if you look at their balance sheet, it is supposed to be worth 40 billion, so only a relationship of 31 times the Equity only valuation... LOL. This means that a true share price would be 31 times lower than what it is today.

I am being nice since AA is not having a zero growth rate, as implied in my calculations above, but a negative one of 7%. Do you want to run the numbers for that or just a small negative growth rate for the next five years, lest say -7%, -6%, -5%, -4%, -1% and positive from then on? It'll be a lot worse.

grid-b-gone's picture

Fed money pumped into the market has caused P/E multiple expansion, or it simply takes more over-printed dollars to buy the same amount of stock as a year ago.

Knowing it's been artificially pumped would normally be a slam-dunk sell, but there's always that doubt that they can keep this up as long as the dollar is accepted as money. 


spine001's picture

Fed Money causing P/E expansion. What you say is true for many companies, but NOT for AA, the situation of AA is that of a bankrupt company or about to go bankrupt. Fed money doesn't justify the valuation of a company with a growth rate of -7%. Alcoa either restructures in a major way in the very short term or it will dissapear, its current valuation doesn't make sense unless you have a bullish world view in the short term which can't be further from reality at this moment. The market doesn't understant or is NOT FUNCTIONING AT ALL. As many ZH are saying, opinion that I share.

HardAssets's picture

And some thought they were in the aluminum business . . . .

actually they sell smoke & mirrors . . .

a rather crowded market on Wall Street

alfred b.'s picture


     Oh you mean like the Fed wants us to "just believe" that they're holding over 8k tons of gold!!


Stoploss's picture

Goes to show how the "efficient market" still includes a 7$ stock in the $INDX.

This whole sham is starting to get a little long in the tooth.

Fortunately, there's only thirteen more quarters to go!!

TheFourthStooge-ing's picture

Everyone is missing the point here. Can't anyone see what these results mean?

Even with such a lackluster Q2, they still managed to beat earnings. This proves that Alcoa's forecasters have supernatural powers of clairvoyance and can see into the future.

That's bound to give their stock a bit of a boost, far more than Plan B* would have accomplished.


*Channel stuffing GM dealerships

Groundhog Day's picture

So when Amazon comes out with minus .10 vs minus .11 it Will trade over 350


Got it

Cursive's picture

@Groundhog Day

There will be a new Kindle announced!  This one will have EVERYTHING that the older Kindles did not have.  And thousands of new killer apps!  And they'll lower the cost of the Prime subscription by $5 for the first month!  It's impossible for us to imagine how wonderful the world of Amazon will be in another 2 years.

prains's picture

will it be able to fire depleted ukranian anti-tank rounds?

Moe Howard's picture

Yes of course. Plus drone kontrol app.

prains's picture

as long as it can snap chat while laser sited then the app is a go

espirit's picture

Still looking for that Mercedes control app?

Mentaliusanything's picture

Keep looking, after all they can identify fingerprints off a " Burnt beyond all recognition" Body. Hint you need skin for that you dummies

Never One Roach's picture

The stock market is much more fun then Fantasy Football !

HowardBeale's picture

Only Bernanke get lower--well, maybe Paulson or Geithner, but it would be mess down there...

Agent P's picture

Sometimes you lower the bar, and sometimes the bar lowers you.

gaoptimize's picture

"Set the bar on the floor and even the midgets can jump over it"

I thought we established that here at Zerohedge, we would say "little people" instead, not to offend Jamie Dimon, Robert Reich, etc.

Parrotile's picture

Us "Little People" might justifiably be offended too - after all we're the class that pays taxes - and that's not just the opinion of Leona Helmsley - "Queen of Mean", but also of other American Multinationals. So much for "Ethical Business Standards" -

SheepDog-One's picture

Here, let me get in there and adjust these earnings with this here crowbar.....AH that's better! Bent out a penny beat! HOORAY!!

ImReady's picture

A 90% reduction in earnings expectations over a 12 mo period, a better than 100% drop in actual earnings can only mean 1 thing...Buy MoooAAARRRR!

orangedrinkandchips's picture

isnt sawed-off PC for midgets? 

Racer's picture

Yep, that's the way to do it, push the bar down to sub basement level so it is an easy stroll across

Snake oil

SheepDog-One's picture

Deftly slouching over the highjump bar now buried 3 feet underground like an obese diabetic Person of Wal*Mart in a Hover'round.

Divided States of America's picture

Well at least the quality of earnings is keeping inline with the degradation of the quality of the food that we consume nowadays.

HowardBeale's picture

Honey, Does this taste like aluminium to you, too?

francis_sawyer's picture

The 'Budweiser' sure does...

HardAssets's picture

You'd think with all the aluminum and other crap theyre constantly criss-cross spraying in the skies nowadays that they could make a decent return. 


USAF Environmental Specialist Kristen Meghan -

nickels's picture

Need a sports analogy? This is just like Tee Ball.

CClarity's picture

Trophies for participation.  4 Every One.

pods's picture

Knocking down a single pin while bumper bowling.

Yay!, who wants a cupcake.  


McMolotov's picture

No one should feel left out. It's important that all corporations have high self-esteem.

ParkAveFlasher's picture

Corporations are people, too.  Have you hugged your corporation today?

RockyRacoon's picture

That's why there's no more dodgeball.  It wasn't the game itself that spelled its doom, it was the selection of team members.  It was too damaging to self-esteem to be selected in the last round.  Poor kids.  Now the awkward, twits, and ugly kids don't know who they are.  They are set up for future failure in trade for a little recognition today.

New_Meat's picture

"They are set up for future failure in trade for a little recognition today."

and are unable to see that things don't go as "expected" so they lose years of opportunities to learn and correct.

All part of the master education plan.

- Ned

LongBallsShortBrains's picture

Don't give ugly people any ideas. We are tired of being the victims of discrimination, and nobody takes our minority status seriously. Every one of you discriminate against us, and it isn't fair.


brown_hornet's picture

Since when are ugly people a minority?

LongBallsShortBrains's picture

Since the commies started perverting words like minority. Ever wonder why women are a minority?

grid-b-gone's picture

This is why it takes an outside consulting firm to do layoffs these days. Few are psychologically prepared for rejection. The only ones who make it much past the pecking order of picking teams person-by-person are tech nerds who can leapfrog far above their grade school station in life.