Alcoa and CSX led off the most recent earnings season with solid reports.  Alcoa beat estimates that were dropped almost 30% in the most recent quarter while CSX beat rising expectations.  CSX continues to reflect the positive trends we’ve been seeing in rail freight.  Neither company provided hard figures in terms of guidance, but in general their commentary was on the positive side.

CSX says the economy remains challenging, but is improving:

“While the economy remains dynamic, our markets overall continue to improve, and our outlook remains positive,” said Michael J. Ward, chairman, president and chief executive officer.  ”At the same time, CSX has demonstrated that it can be successful in a wide array of economic conditions, and that’s what we will continue to do.”

But it’s clear from their figures that sales haven’t quite kicked in to offset the income statement improvement that we’ve seen from the cost cutting side:

“CSX employees remained focused on creating value for our customers to help them compete in today’s economy,” Ward said.  ”As a result, we delivered another strong quarter of financial results for our shareholders while continuing to make high levels of investment in the nation’s freight rail system.”

Alcoa was a bit more upbeat, but it’s important to keep in mind that Alcoa’s business is highly volatile and their earnings can be very lumpy.  Nonetheless, for now, they see broad improvement.  Chuck McLane, chief financial officer says demand is on the rise across all regions:

“Next quarter, we see improving demand in each of our regions.”

Klaus Kleinfeld, chief executive says Europe remains weak, but that China is still healthy:

“Global production is expected to rise to around 66 million vehicle, that’s a plus 15%. The growth is pretty much in every region except in Europe. Europe, pretty much driven by the strong incentives last year that pulled demand forward. I continue to be optimistic on China and believe that we are managing very well through some of the overheating that happened in some of the markets and you see in all markets they are now going to the next phase and restructuring the market to the aluminum market to become more efficient and to become more power conscious.”

All in all, this was the positive commentary bullish investors were looking for.  It’s unwise to make broad generalizations based on so few reports, but so far so good.  The next few weeks will be more telling.  I expect a more mixed picture going forward, though generally “better than expected”.

Cullen Roche

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