The Daily Dose: Alcoa's Real Message

 | Jul 09, 2014 | 9:30 AM EDT
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Today's piece is shorter than the norm for a specific reason: I really want you to focus on what Alcoa (AA) said, and the dots that should be connected in advance of the typical earnings onslaught. I found Alcoa's earnings-related commentary to be fascinating, and more upbeat than the optimistic tone struck just three months earlier.

Here is what I saw beneath the headlines...

  1. Auto light-weighting continues: The biggest trend in the auto market not related to huge infotainment systems like the ones used by Tesla (TSLA), from Apple (AAPL) and Google (GOOGL), is the light-weighting of automobiles. By reducing weight -- as I appreciated more during an interview with a General Motors (GM) executive -- it will continue to lead in big-time improvements in vehicle efficiency (and the planet welcomes this). To see Alcoa shout out this trend continuing relatively unabated suggests automakers will continue to invest substantial dollars in technology, which only comes if their sales outlooks are robust enough to support the investments today.
  2. Improved metal pricing: I honestly know jack about the metal producers and miners; if you cover them, God bless. But, immediately upon hearing Alcoa mention improved metal pricing, I am thinking about the potential numbers in the second quarter from Caterpillar (CAT) and Joy Global (JOY).
  3. Transportation standout: The company substantially raised its North American commercial transportation guidance to between 10% and 14%, versus between 5% and 9% previously. Alcoa cited rising truck orders and backlogs. The read to this analyst: the guidance raise confirms the uptick in consumer spending notched in May, whereby truckers may be realizing improved orders from their key national retail accounts.
  4. Building and construction guidance reiteration: I found it interesting that following the massive earnings warning from Owens Corning (OC) a few weeks ago, Alcoa reiterated its guidance in this segment. Doing so tells me the Owens Corning warning was company-specific, and that the quarters from Home Depot (HD) and Lowe's (LOW) may be in line, to slightly above consensus (more so for Home Depot).

A Large Hole in Retail

A major opportunity I am seeing in retail is the ability of the companies to drive sales via social media. In my view, many retailers remain under-staffed in social media. Actually, they may never be able to be staffed enough in order to address hundreds upon hundreds of consumer interactions with the brand. Starbucks (SBUX) sticks out to me as a company that has worked social media the best, but even they have room for further improvement. 

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