Alcoa's earnings and sales don't shine

Earnings loom over Wall Street

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NEW YORK (CNNMoney.com) -- Aluminum producer Alcoa Inc. kicked off an eagerly awaited round of first-quarter earnings reports Monday, announcing profits that fell short of estimates and first-quarter sales that beat analysts' expectations.

With recession fears growing, investors are closely watching Alcoa (AA, Fortune 500) - a Dow component - for clues about how economic weakness will impact sales and profits.

Alcoa's net income fell 54% from a year ago to $303 million, or 37 cents per share.

These results included restructuring charges. Without the charges, Alcoa said it earned 44 cents per share, below the 48 cents per share that analysts, who typically exclude one-time items from their estimates, were looking for, according to estimates from Thomson Financial.

The company said the decline in earnings was mainly due to difficult economic conditions. Alcoa chief executive officer Alain Belda said in a statement that higher energy costs and the weaker dollar squeezed profits.

Sales fell 6.7% to $7.4 billion, beating analysts' forecasts of $7.22 billion. One of the big reasons for the decline in revenue was because Alcoa completed the sale of its consumer business, which produces Reynolds Wrap, during the quarter.

One analyst suggested that even though aluminum prices are rising, Alcoa may still struggle in the months ahead due to the greenback's woes. That's because Alcoa buys aluminum in stronger foreign currencies and sells it in dollar amounts.

"The price of aluminum is actually getting a little better for Alcoa, but the big issue will continue to be the falling dollar," said Soleil-Bradford Research analyst Charles Bradford.

But the company said that its change of strategy through its sale of its consumer business would positively benefit earnings in the future.

"Our footprint in the aluminum market is unmatched, so we remain in a very profitable position," said Alcoa chief operating officer Klaus Kleinfeld in a conference call with analysts. "I see a lot of earnings power going forward."

Shares of Alcoa rose nearly 1% in after hours trading on Monday. Alcoa is the first major company to report results for the quarter ending in March.

General Electric (GE, Fortune 500) - another Dow component - will release its first-quarter earnings later this week. Next week, investors will get a look at reports from several key financials that have been hit hard by the subprime meltdown, including Merrill Lynch (MER, Fortune 500) and Citigroup (C, Fortune 500).