Alcoa (AA - Free Alcoa Stock Report), the world's largest aluminum producer, kicked off the second-quarter earnings season with net income of $0.28 a share, a few pennies short of our $0.31 estimate, but more than double the year-earlier tally of $0.13. What's more, the company enjoyed a 27% jump in sales (to $6.6 billion), partially reflecting higher prices for aluminum and alumina, but also thanks to key end markets, including commercial transportation, packaging, and aerospace, exhibiting notable improvement. On the negative side, there was a rise in costs for raw materials and energy, and the U.S. dollar was weaker. Nonetheless, it seems that generally favorable demand trends will continue during the rest of the year (though the economic recovery has been uneven), which ought to keep aluminum prices high and enable share net to climb to $1.00 in 2011 – four times the $0.25 netted last year. Further likely expansion of operating margins should enable the bottom line to reach $1.35 a share in 2012.

We also are upbeat about the company's earnings prospects over the next three to five years. That's mainly because of the rise of China, India, Brazil, and other developing countries on the world stage. Indeed, infrastructure requirements in these nations (for such things as housing and transportation) augur well for future aluminum demand. Another favorable trend we see continuing for some time is the increased use of the lightweight metal in cars and trucks. As auto makers have faced mounting pressure from regulators to improve safety, enhance fuel efficiency, and reduce emissions, they have turned to aluminum, which is about as durable as steel (a major component in automobiles). Finally, additional acquisitions are a good possibility, given Alcoa's sound finances.

After the release of the company's results, the stock initially edged a bit lower before bouncing back into slightly positive territory. Investors may have been more focused on the earnings shortfall at first and worried about whether a recent softening of aluminum prices would hurt Alcoa's third-quarter results. Management's revenue outlook was fairly positive, though, which seemed to allay investor concerns shortly thereafter.

About The Company:  Alcoa Inc., a Pennsylvania corporation is a global leader in the production and management of primary aluminum, fabricated aluminum, and alumina combined.  It supplies the aerospace, automotive, building and construction, commercial transportation, and industrial markets. It has more than 300 operating and sales locations in over 30 countries.  Sales of aluminum and alumina account for more than three-fourths of Alcoa’s total revenues.  It also produces nonaluminum products, such as precision castings and fasteners for the aerospace and industrial markets.  Alcoa’s operations consist of four worldwide reportable segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions.

At the time of the article's writing, the author did not have positions in any of the companies mentioned.