Alcoa Big Earnings Beat, Light on Revs - Analyst Blog

Aluminum industry stalwart Alcoa AA kicked off the unofficial start to Q1 2014 earnings season after the bell Tuesday, missing on sales expectations but beating big on the bottom line: earnings per share EPS of 9 cents topped the Zacks Consensus Estimate of 5 cents for a 44.4% positive earnings surprise. Thus continues Alcoa ping-ponging up and down with earnings surprises of late.

Revenues only reached $5.45 billion, down from the $5749 million expected. Alumnium prices have yet to bounce back -- in fact, they're down 8% year over year -- though Alcoa's Engineered Products and Solutions (largely to do with production of new alloy truck wheels) set an all-time record in sales in Q1, and the segment was up 9% overall year over year.

While a revenue miss like this may be difficult to justify Alcoa stock itself hitting all-time highs just last week when considering the quarter, after-market traders seem to like what they see: AA is up another 2% after the earnings announcement following a slightly positive regular trading day. Year to date, Alcoa is trading up over 18%, and the shares are up more than 52% year over year. This is creating somewhat loftier P/E ratios for an industrial firm, which are now north of 22x next year's earnings.

Analysts have been all over the place with estimate revisions, too: within the past 60 days we've seen 10 upwardly revised estimates from its 12 analysts covering (including two in just the past week) and 5 downward revisions within the same timeframe. For full fiscal 2014, we've seen 12 upward revisions and 5 downward. Alcoa has carried a Zacks Rank #3 (Hold) before the earnings report.

For sure, Alcoa's performance was a big improvement over Q1, when the company posted a 33% miss. But last quarter the company took a $1.7 billion charge for legacy smelting operations and settled with the SEC and Department of Justice over charges of bribing Middle Eastern officials. So even with revenues coming in light, Alcoa's Q1 is smelling like a rose by comparison.