Aluminum Weather Vane
The always closely watched earnings of Alcoa will be even more intensely under the market microscope as the major aluminum producer announces second-quarter results after the U.S. stock markets close on Monday. Because Alcoa’s products are used heavily in the automobile, commercial transportation, and construction industries, much attention will be paid to management’s comments regarding demand and the outlook for the economy. Thanks to higher aluminum prices and savings from cost-cutting initiatives, analysts are expecting Alcoa earnings to soar to 32 cents per share from 13 cents per share a year earlier. However, Alcoa may be vulnerable to economic uncertainty particularly in the U.S. and Europe, which account for 50% and 27%, respectively, of net sales. Growth will be carried by demand from its emerging-market customers, including China and Brazil.
What the Innkeeper Can Tell Us
With 631,000 rooms in 3,600 hotels worldwide, Marriott International—which reports Q2 earnings on Wednesday--serves as a valuable proxy for consumer spending and business activity. A key metric in the lodging industry is revenue per available room, or revpar, which is the occupancy rate multiplied by the average room rate. Revpar increased 6.5% in Q1 and 5.8% in 2010. In its first-quarter earnings announcement, Marriott management said it expected 6% to 8% worldwide revpar growth for the second quarter. The real results could help investors and analysts figure out how big an impact deteriorating economic conditions have had on business and leisure travel. Marriott is expected to report earnings of 37 cents per share, up from 31 cent per share. In addition to its namesake hotels, Marriott operates Courtyard, Residence Inn, and The Ritz-Carlton chains.
Is Google Feeling Lucky?
When Google announces its second-quarter earnings on Thursday, analysts are expecting $7.86 per share, up from $6.45 a year ago. However, investors are jittery after Google’s first quarter; soaring compensation and R&D costs caused earnings to fall short of expectations and the stock to drop 8%. Google will continue to spend aggressively to remain competitive, but on Friday, a skeptical Morgan Stanley analyst downgraded Google, arguing that its new products may not live up to expectations. The second quarter saw the launch of Google+, a social networking competitor to Facebook. Ironically, the person with the most followers on Google+ is Facebook’s founder, billionaire Mark Zuckerberg.
State of the Banks
Mixed results are expected for banking giants JPMorgan Chase and Citigroup, which announce second-quarter earnings on Thursday and Friday, respectively. Earnings growth in the financial sector is expected to underperform growth in other sectors. Trading is a particularly weak area, with revenues plummeting. And banks have already announced layoffs related to the slowdown in business. Richard Bove, a financial-sector analyst with Rochdale Securities, warns: “Not only are these jobs going [away] but they may never come back.” However, weakness will probably be be mitigated by loan growth and improvements in loan quality. Last week, the Federal Reserve said consumer borrowing increased by $5 billion in May as more consumer paid with credit cards. Analysts are expecting earnings at JPMorgan of $1.21 per share, up from $1.09 per share a year ago. Citi’s earnings are expected to grow to 6 cents year-over-year to 96 cents per share.