Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Alcoa's Reports: A Study in Spin

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Alcoa's Reports: A Study in Spin

Article excerpt

Earnings season is once again upon us, a time when companies expand the frontiers of the English language to put the best possible spin on their numbers and Wall Street analysts do their obsequious best to curry favor among the executive set.

"Congratulations on a very strong quarter," Goldman Sachs analyst Andrew Quail gushed to Alcoa chairman and CEO Klaus Kleinfeld during the high-performance metals producer's July 11 conference call.

His sentiments were echoed minutes later by an equally fawning Jorge Beristain of Deutsche Bank.

A look at the actual numbers reveals that Alcoa's second-quarter profit rose 4 percent on an 11 percent increase in sales. The results reflect a 15 percent drop in the average price Alcoa's customers paid for a metric ton of aluminum since the year-ago quarter.

Mr. Quail and Mr. Beristain are easier to impress than Carol Levenson, director of research for Gimme Credit. In a July 13 note to clients, Ms. Levenson said Alcoa "is unequaled in its efforts to put a positive spin on bad news by accentuating the positive and eliminating the negative."

If results look worse than they were a year ago, Alcoa's spinmeisters make comparisons with the previous quarter, she said. If the performance of business units is deteriorating, the company changes the makeup of the unit to make historical comparisons difficult, she said.

"If free cash flow looks bad, it will redefine it," Ms. Levenson wrote. "Someday we will write a treatise on the psychology of earnings reports and presentations. And Alcoa will be our case study."

A skeptic like Ms. Levenson knows Alcoa has plenty of competition when it comes to writing rosy history.

On Wednesday, Universal Stainless & Alloy Products highlighted a 3.6 percent increase in second-quarter sales vs. the first quarter. Further down in the Bridgeville specialty steel producer's news release, investors discovered that compared to the year-ago quarter, sales fell 17 percent, one reason why the company's quarterly loss more than doubled to $802,000.

It would be unfair to single out Alcoa for what is common practice in corporate America. …

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