US and Canadian markets dipped on Wednesday as earnings season began with Alcoa (NYSE:AA), the world's leading producer of aluminum, forecasting slower demand for the metal.
Despite that the company's third-quarter earning, divulged after the close Tuesday, beat Wall Street’s expectations, its shares were trading down nearly 5% at 11:00 ET Wednesday morning.
Alcoa posted last night earnings of 3 cents a share, excluding items, which topped the Street consensus of 0 cents and revenue also exceeded expectations, coming in at $5.8 billion vs. the $5.54 billion consensus.
However, it reported a loss of $143 million, or 13 cents a share, compared with a year-earlier profit of $172 million, or 15 cents a share, blaming the slowdown in China.
As The Wall Street Journal noted earlier this week, Alcoa’s results aren’t hot signs for the real economy, but they are good indicators for the stock market. The reason is —says the paper—the aluminum maker has acted as a barometer for how the rest of the market has performed during past earnings seasons, since it feeds into many parts of the economy.
Over the last 10 years, Alcoa has reported quarterly results ahead of analysts’ expectations about half the time. In the quarters Alcoa beats estimates, the S&P 500 has averaged a 3.9% gain over the next three months, according to FactSet.
When the company misses expectations, the S&P 500 has averaged a 0.6% decline over the same timeframe.
The pattern played out last quarter. In July, Alcoa reported a sharp drop in quarterly earnings, yet the results managed to exceed Wall Street’s muted expectations. The S&P 500 is up 8% since that report.
Major manufacturers such as Boeing Co. and Navistar International Corp have been using more engineered aluminum parts from Alcoa to lighten the weight of planes and trucks.
Last night’s reports seems to indicate that making parts and pieces for these customers is more profitable for Alcoa than just supplying basic aluminum, which price has dropped to near two-year lows.