Alcoa's Shining Start to the Fourth Quarter
Wednesday, January 09, 2008SUSIE GHARIB: Stronger than expected earnings today from one of the world's largest aluminum companies. After the closing bell, Alcoa said fourth quarter earnings surged 73 percent, thanks to the sale of its packaging and consumer businesses. Excluding that one-time benefit, Alcoa made $0.36 a share, $0.03 above what analysts estimated. Lower metals prices took a toll on revenues, down 6 percent to $7.4 billion in the quarter, but still higher than estimates. In after-hours trading, Alcoa's shares rose about 2 percent. Alcoa is the first Dow component to report quarterly numbers, kicking off the latest earnings season. But as Erika Miller reports, Alcoa's strong performance may be the exception, not the rule, this quarter.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. is experiencing an earnings recession, often defined as at least two consecutive quarters of falling profit growth. The question now is whether that is a forerunner to a broader economic recession. Wall Street analysts believe profits for the S&P 500 firms fell by 11 percent in the fourth quarter. We'll know the extent of the damage in the next few weeks as earnings reports come out. That presumed decline comes on top of a 4.5 percent drop in the third quarter. Thomson Financial's earnings expert Mike Thompson says the fourth quarter's trouble is concentrated in a single sector.
MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON FINANCIAL: The main culprit is obviously financials. They're down almost 70 percent over the same quarter last year and everybody is fully aware that it's all about the market-to-market pricing and the write-downs that these financial firms had to take.
MILLER: If financials are taken out, Thompson says the S&P 500 would be expected to show an earnings gain of 11.4 percent. Technology is expected to be the shining star, with a 22 percent profit gain for the quarter. But even strong performances like that may not be enough to stave off an economic recession. Today, Goldman Sachs joined Morgan Stanley and Merrill Lynch in forecasting recession for the U.S. economy this year. Goldman's chief economist Jan Hatzius thinks it will likely start in the second quarter.
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: What sort of pushed us to making recession the baseline scenario really has been the data over the last few weeks, in particular, the unemployment rate, the payroll data to some degree, the jobless data claims data to some degree.
MILLER: As a result, he predicts aggressive action by the Federal Reserve to boost economic growth.
HATZIUS: So, we've got them cutting the Federal funds rate target by 50 basis points at the January meeting. And then eventually, we see them going down to 2.5 percent on the Federal funds rate.
MILLER: Against that backdrop, experts say earnings will probably not be the main focus on Wall Street.
THOMPSON: I wouldn't be surprised to see that the earnings have kind of a muted attention this quarter, just because people are so uncertain about what the Fed's going to do, and the talk and rhetoric around -- the resolution around this credit crunch.
MILLER: The situation today is far different from the last earnings recession, which ended in 2002. Back then, technology was the big decliner in the face of the bursting of the Internet bubble. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
