Talking Points:
- Alcoa 1Q 2016 revenue at $4.9 billion versus $5.2 billion expected
- Soft outcome impacted by foreign exchange, lower aluminum prices
- Earnings data may drive monetary policy bets, risk sentiment trends
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Alcoa Inc. released its first quarter 2016 earnings report after the close of US stock exchanges. The report showed that revenue declined 15 percent year-on-year to $4.9 billion, worse than the expected $5.2 billion. Earnings per share (EPS) beat estimateshowever, coming in at 7 cents versus 2 cents predicted.
The report cited negative impacts such as foreign exchange and low aluminum prices offsetting revenues by 20.7 percent. Automotive and aerospace were referenced as the leaders in earnings growth. Going forward, Alcoa’s global aerospace sales targets increased to a range of 6 to 8 percent. Despite the lower prices, primary metals and alumina sales generated strong profits.
Still, the company reported cutting 600 jobs in the first quarter. Perhaps the reduction in total costs associated with having fewer employees could explain why EPS increased despite revenue falling. Alcoa expects to lay off an additional 400 workers in the future. In addition, they are meant to implement other cost controls over time. Alcoa’s CEO Klaus Kleinfeld is confident that they will get to productivity targets this year.
Over the next couple of weeks, first quarter earnings reports from banks such as JP Morgan Chase and tech giants such as Facebook will be released. These figures can help gauge the strength of the US economy as well as that of the world at large, informing comparative monetary policy expectations. They can likewise trigger volatility in sentiment-linked currencies such as the Australian Dollar and the Japanese Yen. As with Alcoa, the impact of exchange rates will be closely monitored.
TradingView Chart Created by Currency Strategist Ilya Spivak
