Sunday 11 October 2009

Alcoa


I choose this topic, as we are all affected by this financial crisis in one way or another; we have and are all suffering due to it. Since the headlines have shown a rather positive look on the market with the 3rd quarter results of Alcoa, I felt the urge to read up on the matter and make up my own opinion, is the economy really recovering as they say, or was it due to restructuring and lay-offs that these results have occurred.




It seems that the world is starting to recover from the global financial crisis, at least according to the headlines. After the unexpected results of Alcoa, the markets have seen an increase in confidence from the investors, but does this confidence really have the necessary groundwork?

Alcoa is as always the first of the Dow Jones Industrials to report its quarter results, thus a lot of eyes rest upon it, increasing the pressure for the company to perform. For the 3rd quarter analyst were predicting a 9% loss but instead Alcoa present a 77 million dollar net profit. The CEO of the company claims that this is due to the increase in aluminium demand, however a little dig into the Alcoa recent pass shall show you that not only an increase in demand was the cause for this rise in profits.

Alcoa has cut 19,000 jobs since the beginning of this year, their was a 83% reduction of the 2.4 billion annual cost, this was done through reducing the number of contractors, through freezing its hiring, companies operations upgrading was drop by 50% and Alcoa has rid itself of its daughter firms which have generated losses. So this leads one to ponder how much of this net profit is really due to a recovering economy or is it all due to the restructuring. Will this become the new trend? Are we not investing into the future anymore? This cost reduction can not go on forever, as this would also have negative effects on the economy in the long run. So will there be another drop in the economy due to the cutting cost measures taken?

It seems many people stay optimistic, the Dow Jones has increased due to the good news, and there has been a positive global reaction to the Alcoa news, an 11% increase in aluminium is expected in the near future. Reuters online also mentions that this is a sign that the key markets are stabilising and are expecting another increase for the 4th quarter. Only a few newspapers warn of the still possible dangers, the NZZ (Swiss paper), warns that rest of the quarter reports are still to be expected and not all of them seem to be in a positive light, such a CIT Group, which stands close to bankruptcy. The International Herald Tribune also warns that some analyst “caution that the market remains weak and might have a negative impact on the future of Alcoa”. Bloomberg also mentions that Alcoa still has to face “headwinds in foreign currency and energy costs”.

There are no definite answers to the posed questions, personally I believe that the market is recovering too quickly and using all available methods to do so. However, in my opinion this shall lead to another drop in the world economy, not such a blast as the one of 2008/2009, but we shall be thrown back again. The global markets is all a mind set of the masses, if there is a general believe and confidence in the market, then we shall see one, as people will start buying again, they shall go back to a more normal way of life, without worrying about every penny and their job.

For this blog I looked at a wide array of newspapers, this time I felt this is a very important story and thought I best to compare it to newspaper that can hold their weight and not to tabloids. In general I found the NZZ, Bloomberg, Financial Times and International Herald Tribune articles to be straight forward, based on facts and figures portraying a positive market outlook, but also warning of being to overly enthusiastic, yet generally being neutral and objective.
BBC, Times Online and n-tv (German newspaper) both state the facts of the day, with no possible consequences, naming no causes, simply adhering to the facts and figures of the day, not too informative at the end of the day. Although digging back into story, Times Online did not always seem to favour the methods used by Alcoa to obtain better results.
The Financial Times also posted a video explaining what is to be expected from the 3rd quarter results according to Reuters, this is professional in terms of content but I find they should really get a new analyst, as this one simply is not up to the task. (Unfortunately my computer wont allow me to upload this video please have a look at it on http://www.ft.com/cms/s/0/3c6f8692-b42e-11de-bec8-00144feab49a.html).


Till next week.



Sources used:

NZZ:
09th October
Optimistischer Start der amerikanischen Berichtssaison
http://www.nzz.ch/nachrichten/wirtschaft/boersen_und_maerkte/alcoa_und_pepsico_befluegeln_us-boersen_1.3829201.html

08th October
Alcoa-Ergebnis beflügelt die Weltbörsen
http://www.nzz.ch/nachrichten/wirtschaft/boersen_und_maerkte/alcoa_kehrt_ueberraschend_in_gewinnzone_zurueck_1.3820213.html


n-tv:
10th October
Dax-Vorschau
http://www.n-tv.de/wirtschaft/marktberichte/Hohe-Erwartungen-an-Bilanzen-article542110.html


Times Online:
January 6, 2009
Alcoa will cut 15% of workers as crunch bites
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5462588.ece

October 9, 2009
Mining sector underpins investor confidence
http://business.timesonline.co.uk/tol/business/markets/article6867071.ece


Financial Times:
8th October
Short View: Earnings season begins
http://www.ft.com/cms/s/0/3c6f8692-b42e-11de-bec8-00144feab49a.html


Bloomberg:
8th October
Alcoa’s Faster-Than-Expected Cost Cuts Yield Profit
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqTkObL.UZ5A


International Herald Tribune:
8th October
After Heartening Reports, Shares Rise
http://www.nytimes.com/2009/10/09/business/09markets.html?_r=1&scp=2&sq=alcoa&st=cse


8th October
Alcoa Stock Up After Profit Wall St Didn't Expect http://www.nytimes.com/reuters/2009/10/08/business/business-us-alcoa.html?scp=9&sq=alcoa&st=cse

BBC:
7th October
Alcoa announces surprise profit
http://news.bbc.co.uk/1/hi/business/8296057.stm


Reuters:
8th October
Alcoa stock up after profit wall street didn’t expect
http://uk.reuters.com/article/idUKN0851635320091008

1 comment:

  1. Stella, this is a very professional blog with a good voice. Your opinion is interesting and you are thinking about the issues. You have also done a lot of research. It sounds like the reports you read were straight forward and hence did not lend themselves to analysis of bias but perhaps you could analyze the bias (if any) to the sources chosen and the quotes used to illustrate the story. How did the company PR machine try to sping the story? 7.5/10

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