The dreary Alco results were released after the markets closed, the same day the Dow Jones Industrial Average topped 11,000 for the first time since June 2001.
The Alcoa results raised fears the U.S. manufacturing sector may not be as strong as hoped, sending markets down Tuesday morning.
Alcoa's stock (NYSE.AA)fell 5.5 per cent to $28.88 US on the New York Stock Exchange Tuesday morning, making it the biggest drag on the Dow.
Alcoa got the earnings reporting season off to a shaky start because it is the world's biggest aluminum producer and a key indicator of industrial performance.
"When a disappointment comes from a bellwether like Alcoa, it sort of freezes the ball for a moment," Cummins Catherwood, managing director of Walnut Asset Management, told Reuters.
UBS was also surprised by the news and cut its rating on Alcoa to "neutral" from "buy." UBS did, however, raise its price target on the stock to $34.50 from $33.
The news was particularly shocking because Alcoa set a 52-week high of $32.29 last week.
The Dow Jones industrial average fell 49.06 points, or 0.45 per cent, to 10,962.84 by 11 a.m. Tuesday, while Standard & Poor's 500 Index fell 5.22 points, or 0.40 per cent, to 1,284.93.
Alcoa reported profit of $224 million US, or 26 cents per share, for the October-December period, compared with $268 million, or 30 cents per share in the same year-earlier period. Earnings from continuing operations were $210 million, or 24 cents a share. Wall Street had expected profit of 37 cents a share during the period.
The dreary performance caught the markets by surprise because aluminum prices are high, giving Alcoa a boost to the top line. But Alcoa's costs rose faster that profits.
"Entering 2005, we anticipated significant pressures from rising input, energy costs and other cost inflation, but actual increases were even higher, nearly $900 million for the year," said Alain Belda, Alcoa's chairman and chief executive officer.
Alcoa said its bottom line was slammed by a number of setbacks that shaved $93 million US, or 11 cents per share, from its earnings.
- FROM JAN. 9 2006: Dow industrials moves past 11,000 for 1st time since mid-2001; TSX
Hurricanes cut production at refineries in Jamaica and Texas, and there were production problems at an Australian smelting plant, strikes in Spain and restructuring costs.
"In the year ahead, we don't foresee the same sharp spikes on input prices, and our initiatives will gain further momentum to offset inflation and improve the bottom line," Belda said.
