Alcoa's disappointment: Cost-cutting, not revenues, powered earnings

Alcoa's (AA) earnings are just the first set of the season, as usual. And they were better than expected. The company made 4 cents a share, excluding restructuring costs. Wall St. had expected a 9-cent loss. Revenue was $4.6 billion, down 40% from last year, but still better than expectations.

What Alcoa made clear, and what's obvious from its revenue figures, is that cost cuts drove earnings. This is exactly what economists hoped not to see. When it comes to the U.S. economy beginning a recovery, the expectation, or at least hope, is that large American companies can strengthen the top line -- not just the bottom one. Economists are looking for corporate sales to improve as an indication of better GDP activity. From that standpoint, Alcoa is a disappointment.

Alcoa's results, posted after the close on Oct. 7, will probably cause a market rally because even though profits were down from the same period a year ago, they weren't down as much as most analysts thought. Still, there's a reasonable question about whether the figures are really good news.

The key issue about whether spending is recovering will come into focus as firms that sell consumer electronics and personal and household goods report. Retail earnings will also be critical.

If most reports look like Alcoa's, they'll show only that companies can fire and restructure, not that they're having better success selling things.

Douglas A. McIntyre is an editor at 24/7 Wall St.


Increase your money and finance knowledge from home

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

What is Short Selling?

Make a profit when stocks prices fall.

View Course »

Add a Comment

*0 / 3000 Character Maximum