Monday, April 7, 2008

Alcoa CC Pyschology Q1 2008

The CC started at 5:03 PM ET with Greg from IR reading the safe harbor statement. (
Chuck CFO at 2 minute mark (m): global fundamentals strong, but drag on margins is the weak dollar; the weak dollar was mentioned two more times by the 3rd m.
6th m: portfolio has changed dramatically recently.
8th m: cost pressures from the currency translation. Chuck sounded very matter of fact and confident.
9th m: higher costs have and will hurt results, depressed levels mentioned; Russia a positive going forward. Softness in automotive was offset in aerospace and forgings business.
10th m: expect strength in aerosopace and weakness in the automotive sector.
11th m: addressed Cash Flow statement.
12th m: current market details addressed: lower growth explained; although China, India, Russia, and Taiwan remain strong.
15th m: end markets addressed; second straight year decline in North America; Europe soft as well. Aerospace is the silver lining. Detroit 3 had an 18% decline.
16th m: European truck demand positive, but North American decline is not projected to change until the year end.
17th m: tighter credit conditions in U.S. mentioned.
17th m: CEO Alain introduced Klaus COO
18th m: PhD Klaus began; sounded like a thinker more than a WS Executive, "I'm excited to be a full time Alcoan."
Tightness of supply addressed 20th m; mega trends addressed; numerous opportunities ahead for Alcoa.
21st m: more people living in cities, ramifications addressed.
22nd m: theme growth rates addressed. Klaus was very calm and relaxed.
25th m: growth pipe line explained while looking at a slide.
26th m: China mentioned
27th m: Klaus just returned from Beijing and had discussions with government officials
30th m: mentioned last CC and pointed to a slide, comparing the past to today.
We give Klaus credit here, as execs on CCs rarely remind of previous projections
31st m: very well positioned for future growth
32nd m: Klaus expects China and Russia to improve, but slower than expected in Russia
33rd m: positioned to increase market share in the defense industry
34th m: only cash creates real shareholder value, stated very powerfully, "I am confident".
35th m: Alcoa advantages: talent, customer intimacy, technology, purchasing, and operating system.
37th m: summarized his presentation; very comfortable, but somewhat too relaxed in our opinion.

Question & Answer session started at 39th m:
John Hill from Citigroup for COO Klaus Q: long term earnings power going forward without just relying on the obvious commodity affect. A: believe there is potential, we are in a favorable position, 40th m, defensive, "I just showed you the 2 slides". 41st m, some stuttering and apprehension, very defensive tone. 42nd m, laughed.
We definitely believe John is a forward-thinking analyst; our readers would be wise to follow him.
Mike JP Morgan Q for COO Klaus: If you were CEO, what would you change A: we have a team that works together, we sensed the good ol boy answer here, we felt he gave a "shallow fraternity response" 43rd m--44th m, we don't feel Klaus answered the question. 45th m, very defensive executive in background, almost jeering at the analysts.
47th m Harry from Lehman, Steph in for Harry Q: Capital Expenditures A: $3B level, Stephanie said okay. Follow up from Steph: share buy backs A: we will continue to buy back. We felt Stephanie's questions were below average, we hope to see Harry back on the next CC.
49th m Charles Bradford from Soleil Securities Q: Power outages on China A: More than 10 plants, some parts were frozen up; every effort to get plants on line, constraint of 550,000 tons.
CC ended in the 50th minute

In conclusion, our readers would be wise to distinguish between the good, but predictable slide presentation and the subpar (31%) question and answer session. Several key analysts who in the past couple weeks either initiated coverage or changed their ratings failed to even show up! We find that pathetic and ridiculous for investors and their representative Wall Street firms. So much for accountability and transparency. Where was Harry from Lehman brothers? His replacement Stephanie showed up for which we give her credit, but her questions were another issue.

Hats off to John from Citi; he asked the first and what we felt was the last forward-looking question of the conference call. John's rating and opinion must be followed.
There are currently 16 analysts rating/covering Alcoa, but only 5 of those asked a question (31%); some investors may take issue with that. In addition, Friedman Billings who down graded Alcoa on March 7th, and BMO Capital Markets who just last Friday, April 4th initiated coverage with a market perform rating did not ask one question. Makes you wonder whether Bear Stearns' CCs were more transparent, or whether some analysts failed us by not even asking one tough forward-looking question. We hope you support our efforts for greater transparency on Wall Street. Your CC comments are always welcome, as we do add your insights and archive for verifiability.

Although we like the look and feel of light weight aluminum cans over the bulky steel cans used in the 1970's; we feel Alcoa's Klaus has a monumental task of hoping the cyclicality of commodity prices swing his way. Predicting global supply and demand forces on commodity prices is too difficult to forecast. Alcoa is a prisoner of the global economy, and that is a difficult dynamic to control. 90% of the questions were directed and answered by the new executive COO Klaus. Either the Wall Street analysts believe he is the savior going forward or CEO Alain has lost credibility. You decide. Thanks for understanding the Psychology of this Call.


Anonymous said...

I can't believe 11 analysts didn't ask a(1) question, unbelievable. Thanks for the heads up.

Anonymous said...

I can't believe 11 analysts didn't ask a single question, unbelievable. Thanks for the heads up