Alcoa Whats it all Mean? $AA Dividend’s at Risk. Commodity inflation interesected by interest rate risk.

Alcoa (NYSE:AA) was long a bell weather for the stock market. Coming out first it helped set the tone. It was a minerals producer making a product which acted as a barometer to the health of the general market. But aluminum is a uber tough market. Alcoa is rebuilding but is still highly levered and not entirely out of the woods. My guess is it will hit earnings expectations dead on. It needs to keep investors believing.

Here is what Alcoa will show you. Some $8.3 Billion dollars in debt which has just be rated as junk. Institutions are sorry they ever circled this name. Interest rates are trending up. For every 1% increase in debt cost Alcoa spends $83 million in interest costs. Last calendar year Alcoa had some $236 million of net cash flow. 4% increase in debt cost will eat that up.

You know they’ll cut or cancel dividends before that. So dividend investors need to be very afraid if they haven’t become already. The stock is dropping. It will become a cheap option without expiry on the aluminium business. Eventually the industry will come back and the commodity will have pricing power. In the meantime you need to have a very strong stomach and not have specific plans this the money.

George Gutowski writes from a caveat emptor perspective.

Alcoa’s Board is it Still Up To Challenge? $AA

Alcoa (NYSE:AA) is coming out with earnings soon. Does their board of directors still have what it takes. The average age of the independent director is 66. Average tenure is 8.3 years. Three women out of ten independent directors.

The lead director is Dr Judith Gueron age 71 who has been on the board since 1988 and is a highly respected economist. We could not identify any other board memberships either past or present.

The most interesting or should I say Machiavellian member is Ratan Naval Tata of the Tata Group from India. A global company if there ever was one. Mr. Tata is also on the international advisory boards of Mitsubishi Corporation, JP Morgan Chase, Rolls-Royce, Temasek Holdings and the Monetary Authority of Singapore.

Will the interests of Alcoa shareholders align with those of Tata? Will a lead director with about 25 years at the table be the right person for the job?

George Gutowski writes from a caveat emptor perspective.

Alcoa Declares Dividend It Cannot Afford $AA $ACH $CENX

Alcoa

Alcoa (Photo credit: Wikipedia)

The Board of Directors of Alcoa (NYSE:AA) declared a quarterly common stock dividend of 3 cents per share payable November 25, 2012 to shareholders of record at the close of business on November 2, 2012. Current estimates are somewhere around 1 cent per share in earnings. Hey buddy that’s negative cash flow. B schools tell you that’s a big no no.

When the estimate is just a penny a share you know it’s on a knife’s edge and any little burp can tip it into the red. Aluminium is a global commodity and the globe ain’t looking so good. Alcoa has cut costs but they can only go so far. They have some cash and they have a very serious level of debt. Now their very own capital structure will become a negative cash flow problem.

OK so for 3 cents a share and the stock trades at around $9.20. No one is expecting good news. This is the opportunity to clean house and position yourself for the future. Think deep value here. Buy ugly sell pretty should be the game plan. Aluminium is core to the modern economy. Beer cans to aircraft components create a natural diversification. The winner will be the efficient operator.

Sure you closed a few obsolete facilities. You need to restructure financially or someone will eat your lunch.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti

Alcoa Reaches Tipping Point. Watch for Bold Moves. Someone Has to Do It! $AA

Alcoa

Alcoa (Photo credit: Wikipedia)

Alcoa (NYSE:AA) kicked off earnings season by beating reduced expectations by a penny. The corporate story is cash flow is improving and market fundamentals are also looking good. They have done much heavy lifting and amputated low margin low productivity operations, usually much to the shock of local union organizers.

What more can be done to improve productivity? Nothing major. Unless a wild-eyed scientist invents something over night investors can assume that road leads nowhere.

Demand from China is widely viewed as declining. Indonesia supplies 80% of bauxite that China needs. Indonesia has announced bauxite export reductions.

Bauxite is a geo-politically sensitive commodity. China may experience demand fluctuations but will still view supplies on a long-term perspective. They of course will buy for their account without concern for Alcoa’s future.

So what is the best move to secure the future. You can sit back, declare yourself a commodity play and ride the pricing roller coaster. Or you can go out when demand is shrinking and valuations softening and make the bog bets that will create dominance in the future.

Passive strategies probably will not carry the day.

George Gutowski writes from a caveat emptor perspective.

Alcoa Delights Investors With Shiny Q1 numbers. Careful How You Giggle! $AA $RIO

Alcoa - Expo Alumínio 2010

Alcoa - Expo Alumínio 2010 (Photo credit: industriabrasileira)

Alcoa (NYSE:AA) printed black ink delighting investors and surprising analysts. Consensus was for red ink. essentially the market for aircraft grew enough to overcome beer can disappointment. But lets take a close look at some of the individual components and determine if this is really a blue chip or just yesterdays floozie with a run in her stockings.

  1. 9 percent drop in the realized price of aluminum and a 13 percent drop in the realized price of alumina, year-on-year. Hard to rejoice and see increasing wealth when the commodity price is dropping substantially.
  2. Capital Expenditure has dropped and much capacity which was marginal at best was closed. Nice work. But what about improvements and expansion. The emphasis seems to be on how much they have cut not how much they have added. Healthy vibrant propositions will be adding, expanding and growing in some fashion. Not present in the current scenario.
  3. According to  Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer, “Performance rebounded strongly this quarter due to our proactive cash  sustainability actions, our relentless focus on profitable growth, and stabilizing markets.” Buzz word city for the CEO. Exactly what is a cash sustainability action? Also what markets are stabilizing and what markets are you exiting.
  4. At the same time Alcoa is forecasting a world-wide global aluminum deficit and is forecasting global aluminum demand 2012 growth of 7 percent. That is absolutely critical to hit your numbers in the future.
  5. BTW short-term borrowings has sky rocketed, cash has dipped slightly but long-term debt has plunged dramatically. This means we need to see some refinancing and stretch out the debt payments.
  6. Oh wait a second do you think Alcoa is going cap in hand to the debt markets and trying to refinance. The story is so much better if a loss was expected but no wait a strong Q1 was printed making the future picture very cozy and bright. Hmm

Now compare to another formidable aluminium player. Rio Tinto (NYSE:RIO) who swallowed up Alcan. Of course Rio Tinto is much more diversified and does not seem to have the same legacy costs as Alcoa seems to be solving. Also in the money talks and b**sh*t walks department Rio tinto has a $100 Billion market cap and pays a 3.5% dividend yield. Alcoa is a puny $11 Billion market cap and only pays a 1.29% dividend yield. So when Klaus Kleinfeld speaks Rio Tinto may only listen with one ear.

George Gutowski writes from a caveat emptor perspective.

George Gutowski also spent much of his formative time lending money and he has to tip his hat to Alcoa on timing. This is the oldest trick in the book. N’est ce pas.

Alcoa walks point. Does Alcoa attract volatility and hurt shareholders? $AA $VIX

Alcoa

Image via Wikipedia

Alcoa (NYSE:AA) is about to announce quarterlies. It has become the traditional kick off for earnings season. Alcoa is the first major to announce and market pundits start to blog, twitter and spew. They attract a lot more attention than other majors.

In effect they walk point on the jungle trail. The enemy sniper sees them first. The enemy the booby trap gets them first. Alcoa comes into hot contact with the marketplace first. Inadvertently they attract a lot of attention which creates volatility because of their self selected earnings announcement timing.

Are the shareholders well served by this. Probably not. This volatility has nothing to do with the business risk of Alcoa. Why would an investor want to accept the risk?

Note to management. Stop going first. You have no obligation to feed the news cycle and you are probably hurting your investors. So stop it already!

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold not positions in any stocks mentioned in this post. I hath no plans to initiate new positions within the next 72 hours.

Alcoa insider trading tells all $AA #insidertrading #aluminium

Alcoa

Image via Wikipedia

Everyone awaits Alcoa (NYSE:AA) like children waiting for Christmas. Check out the insider trading and you will find in May 2010 several of the senior executives exercised and sold more than they exercised,thereby reducing their exposure. This includes Helmut Wieset EVP and Group President Rolled Products, Hard Alloy Extrusion and Asia as well as John Thuestad EVP & Group President global Primary Producers. 

What other signals do you need?

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.