The big news—the news that’s fueling today’s across the board rally in stocks—isn’t the extra two cents that Alcoa (AA) reported in second quarter earnings last night. The company reported earnings of 13 cents a share, two cents a share above Wall Street forecasts. Much of that, however, seems to have come from more aggressive than expected cost-cutting at the company.
No, the big news was the company’s increase in guidance for the next quarter and the rest of 2010. The company said that it was raising its forecast for global aluminum demand to 12% growth this year from its previous forecast of 10% growth.
That raised hopes on global stock markets that economic growth this year might actually be higher than expected. In this earnings season it’s guidance that counts, I’d argue.
The increased demand comes from lots of markets and in lots of industries.
Alcoa’s forecast for higher demand growth depends heavily on China and the United States. The company raised its forecast for demand growth to 12% in 2010–or 6.5% if you exclude China. Although China is the fastest growing growth market, the United States still accounts for more than half of Alcoa’s revenue. I think it’s reasonable to infer that an increase in the company’s demand forecast reflects continued decent growth from the United States. Especially since Alcoa is forecasting essentially no growth from Europe.
Revenue growth in the quarter was led by commercial transportation and packaging. Alcoa forecast that aluminum sales to the auto industry would grow by 3% to 8% this year with sales for trucks and truck trailers set to climb by 12% to 17%. (That feeds into my forecast of better than expected growth for Cummins. See my July 8 post Update Cummins (CMI) .) The company did forecast a continued decline in demand from commercial construction—but the forecast drop was just 1.5% to 2.5%.