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Do You See What Happens, Alcoa, When Your "Restructuring" Non-GAAP Addbacks Tumble
Moments ago, the company that traditionally kicks off earnings season did just that, and sent the ball into a throw in. The reason: just like all the other companies that have reported and pre-reported so far in the third quarter, its results were a huge miss: AA reported non-GAAP EPS of $0.07 missing expectations of $0.13, on revenues of $5.57 billion, a 10% drop Y/Y, also missing top-line estimates of $5.75.
And while the company did have some justifications for the collapse, blaming what else but China...
In China, Alcoa lowered its estimate for 2015 automotive production growth to up 1 to 2 percent, from up 5 to 8 percent; reduced its projection for 2015 heavy duty truck and trailer production growth to down 22 to 24 percent, from down 14 to 16 percent; reduced its 2015 commercial building and construction sales growth to up 4 to 6 percent from up 6 to 8 percent; and kept its 2015 packaging estimate unchanged at up 8 to 12 percent.
... the real culprit is none of that. Because, as regular readers know very well, with Alcoa it is all about the Non-GAAP addbacks.... and the problem here is that while in previous quarters Alcoa's "restructuring" charges were vast, usually eclipsing the actual GAAP earnings number, in Q3 they tumbled to "only" $66 million - the lowest since March 2013.
They are shown as follows:
Because that $0.07 EPS, that was non-GAAP. On a GAAP basis, Alcoa generated a paltry $44 million in Net Income, down 70% from a year ago, which translates into 2 cents per share.
And just to show what Alcoa's true EPS picture looks like, now that its restructuring charge "addbacks" are finally grinding to a halt, in the past year, GAAP Net Income was just $538 million. What about non-GAAP net income: more than double that or $1.154 billion. And that's why, as Alcoa's Non-GAAP myth is about to collapse into the company's GAAP reality, its P/E is about to double... just as the company's topline is tumbling.
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Lets see how long the market keeps trading up on bad news.
There are many more misses yet to come.
My favorite so far is Monsanto missing massively and announcing both layoffs and $3 billion in stock buybacks ... their stock has been up since then. What a fucking joke.
My indicator that today's rally, at least, was all squeeze and momo was that AAPL went down 1% and FCX was up like 4%. One is a real company that's still making a profit with 12 figures in the bank, the other one is so overleveraged, in an industry in the throes of a secular downturn, that its continuing existence as an independent going concern is far from certain in the longer-term.
(No position in either! I'm a bit mystified that Uncle Carl, who doesn't see value in stocks even at last week's levels, thinks FCX is worth buying. A business that has more debt than its assets are worth (especially in commodities) is still a zero in my book.)
Should be good for a 350+ rip in the DJIA tomorrow!
Sure. You must buy because this will be the "kitchen sink" quarter. They will lump all the bad stuff into this quarter and "it can only get better from here"
I wonder if there will be a trend of "truth reporting" where companies that traditionally only report adjusted non-GAAP numbers will report more GAAP-like numbers.
Alternatively maybe GAAP needs to be abolished so that Wall Street can better justify stock prices ... wait, they don't need to justify anything. The propaganda ministry does that.
down 5% after hours
futures are tanking after Alcoa
they are down 2 points....sorry 0.09%
Here are some signs of a coming recession.
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
http://michaelekelley.com/2015/09/27/vix-predicts-pits-while-pundits-have-fits/
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
All minuses are bullish in this Fed controlled market,
Some day it will normalize.