Alcoa beats the Street
The aluminum producer and Dow component kicks off the latest round of earnings reports by saying that higher volume and prices offset rising commodity costs.
NEW YORK (CNNMoney.com) -- Aluminum producer Alcoa Inc. announced profits and sales that topped Wall Street's forecasts as higher prices offset increasing commodity costs.
The Dow component kicked off an eagerly awaited round of second-quarter earnings reports. And despite better-than-expected results from Alcoa, many believe earnings for the second quarter are likely to disappoint investors.
As skyrocketing oil prices pinch manufacturers' profits, investors were closely watching Alcoa (AA, Fortune 500), considered a bellwether for how climbing commodity prices might affect corporate sales and profits.
Alcoa's net income fell 23.6% to $546 million, or 66 cents per share, from $715 million in the second quarter of last year. But earnings topped consensus estimates of 64 cents a share, according to analysts polled by Thomson Reuters.
"The aluminum market is holding up relatively well," said Mark Liinamaa, North American metals and mining analyst for Morgan Stanley. "The quarter was reasonable with respect to market conditions and to some degree that was better than the market expected," he said.
The aluminum industry is facing rising input costs, especially rising energy costs. "The whole industry is being affected," by rising oil prices, said Liinamaa.
In after hours trading, shares were up almost 4% from their closing price of $32.33.
Sales came in at $7.6 billion, ahead of analysts' forecasts of $7.36 billion. Revenue were down 6.2% from the company's $8.1 billion in sales a year ago but that figure included revenue from businesses that Alcoa has sold this year. Excluding those businesses, Alcoa's sales were up 11%.
"Higher prices for our products and increased volumes more than offset the increased input costs facing the entire industry," said Klaus Kleinfeld, Alcoa Chief Executive Officer, in a written statement.
During the conference call following the earnings release, William Christopher, Executive Vice President and Group President of the Engineered Products and Solutions sector, explained that his group is moving away from automotive investments and into more profitable sectors, such as aerospace and oil exploration.
In his presentation, Christopher says that the company's positions in aerospace and other more profitable sectors will "offset North American truck and automotive weakness."
Kleinfeld explained that while there has been domestic weakness across all sectors, global demand has been strong, and the company projects a 7.9% growth in global aluminum use in 2008 over 2007.
"Despite North American weakness, so far, it suggests that emerging market demand is holding things up," said Liinamaa.
Alcoa is the first Dow company to report its results for the second quarter. Another Dow component, General Electric (GE, Fortune 500), will release its second-quarter earnings on Friday. Next week, investors will pay close attention to earnings announcements from key financials Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Merrill Lynch (MER, Fortune 500). 
