Despite all the demand for Aluminum and the supposedly robust economy, Alcoa’s number’s were pretty punk Tuesday night. Doug Kass is right on top of it:
The earnings season started off with a whiff, resembling Alex
Rodriguez’s pathetic hitting and fielding and the New York Yankees’ postseason
disaster over the last week.
Genentech (DNA) struck out on a full count as several metrics failed
to meet expectations. While Lucentis dramatically beat forecasts, its old
drug drivers stalled.
Alcoa (AA) whiffed on three straight pitches as cost pressures, mill
outages and weakness in residential construction (remember the multiplier effect I have been emphasizing!) contributed
to a large miss.
Legg Mason (LM) also struck out on three consecutive pitches as the
company guided lower on a revenue shortfall and a product mix change towards
lower yielding fixed income. (Mother Merrill cut the stock to a sell this
Alcoa and Legg traded much llower, while the bulls
all claimed these were "company-specific misses" and not indicative
of a new corporate profit trend. Indeed, since then, Pepsi’s (PEP) numbers were very good, and so too appears Lam Research (LRCX).
Kass notes what this potentially means to this quarter’s reporting:
"First, these misses are consistent with my outlook for lumpy and uneven growth in the next few years. As I have repeated often, exiting a world of aggressive stimuli (fiscal and monetary) will produce a period of choppiness, providing a challenge for corporate managers to navigate. This is not a P/E multiple expanding development.
Second, the broad scope and implications of a protracted and hard landing for housing is not being adequately reflected in overall corporate profit forecasts. Housing casts a much longer reach than is generally envisioned and Wall Street’s bottom up 12%-13% earnings growth expectations for 2007 will likely be widely off the mark.
Third, over the next few weeks I believe an expected rise in bond yields to be an even greater threat to the deceleration in corporate profits and the growing perception that corporate profit margins are at risk.
Interesting take. Thanks, Doug.
Those Damn Yankees
The Edge, 10/11/2006 7:45 AM EDT