Alcoa Inc (NYSE: AA) Q1 Earnings Call: Top 4 Things To Watch [VIDEO]

Alcoa Inc. (NYSE:AA) reported quarterly results after U.S. markets closed on Tuesday, unofficially kicking off the spring earnings season. The huge aluminum producer issued fiscal first-quarter earnings of 9 cents a share, excluding items, on sales of $5.5 billion. Wall Street had expected Alcoa to report earnings of 5 cents a share on $5.55 billion in revenue, according to analysts polled by Reuters.

Shares of Alcoa rose 2.31 percent to $12.82 in after-hours trading ahead of the company’s earnings call.

Alcoa Chairman and Chief Executive Officer Klaus Kleinfeld was scheduled to hold a conference call with shareholders on Tuesday at 5 p.m. Eastern to discuss first-quarter 2014 results, and analysts and investors will be looking for four key things from Alcoa’s earnings call: aluminum prices, outlook, topline sales and earnings growth.

Aluminum Prices

Alcoa reported a first-quarter net loss of $178 million, or 16 cents per share, which included $276 million in special items mostly tied to smelter and rolling mill capacity reductions. Excluding items, the company posted net income of $98 million, or 9 cents per share. Meanwhile, revenue came in at $5.5 billion, compared with $5.83 billion in sales a year-ago.

“Alcoa’s revenue comes from four different areas,” Jonathan Corpina, senior managing partner with Meridian Equity Partners Inc., told International Business Times. “They have mining, smelting, flat aluminum products and then they have aluminum products that they make for airplanes. So the last two are a higher-margin business, flat aluminum for cans and the airplane parts, but the mining and the smelting really is affected by aluminum prices, and that’s where a number of their revenue comes from in those two primary areas.”

The company said first-quarter revenues were down 2 percent sequentially, due to capacity reductions in primary metals. Meanwhile, revenue fell 6 percent compared to the same period a year earlier as realized aluminum prices fell 8 percent year-over-year.

“If you strip down their business and you look at those four components, it all comes down to aluminum," added Corpina. "Aluminum prices, mining, smelting and what other industries out there are requiring that type of material from them. So it’s going to be interesting to see their take on the overall commodities market and how it’s affecting their pricing.”

Alcoa added in its earnings report that its first-quarter results were offset by special items tied to restructuring as "the company’s transformation accelerates." In addition, Alcoa said it is taking aggressive action to lower the cost base of its commodity business and announced three smelting capacity reductions in the first-quarter.

Outlook, Topline Sales & Earnings Growth

Alcoa said in the report it maintains its 7 percent global aluminum demand growth in 2014. The company’s first-quarter results compare to a net loss of $2.3 billion, or $2.19 per share, in the fourth quarter of 2013. Excluding items, Alcoa’s first-quarter results compare to net income of $40 million, or 4 cents per share, from the previous period.

“I always look at what they talk about in the outlook going forward. Sometimes you have to read the tea leaves a little bit when these guys talk,” Keith Bliss, senior vice president and director of sales & marketing at Cuttone & Co., Inc., told IBT. “It’s important to note what they’ve done in the prior quarter, but we’re going to hear all kinds of excuses from all of the S&P 500 companies this quarter. It’s either going to be FX was a problem because the dollar strengthened or we had bad weather in the U.S. So expect that out of most every report you hear. So I don’t care about that. That’s ancient history.”

Alcoa’s first-quarter results for 2014 compared to net income of $149 million, or 13 cents per share, in first-quarter 2013 on revenue of $5.83 billion in the year-ago period. Excluding items, first-quarter 2014 net income compared to $121 million, or 11 cents per share, in the year-ago period when realized aluminum prices per metric ton were $193 higher.

“Remember, the stock market is a valuation of the discounted future cash flows of the companies that are within the stock market,” added Bliss. “So I want to start getting a gauge on what they think is going to be from top line sales and then earnings second.”

Alcoa said the company’s value-add businesses drove 58 percent of first-quarter revenues and drove 76 percent of first-quarter segment profits.

“We expect this quarter over all in the S&P 500 to have an earnings decline, which would be the first time in two years, year-over-year, in earnings decline,” said Bliss. “Basic materials as an industry, which by the way is what Alcoa fits into, their revisions to their earning have come way down since Dec. 31 [2013] and that sector is now supposed to have an earnings decline year-on-year. Not all sectors are, but again, Alcoa is still one of those bellwethers from a materials and commodities standpoint, a global economic growth story. I want to know what the CEO is going to say going forward and what he really thinks about aluminum prices for the rest of this year.”

Shares of Alcoa closed Tuesday’s trading session up 0.48 percent to $12.53.