Do Alcoa's Results Signal Trouble For Aerospace And Construction Companies?

Alcoa Inc (NYSE: AA) kicked off Q1 earnings season on Monday with some mixed results, but Goldman Sachs sees far-reaching implications for Aerospace & Defense stocks.

According to analyst Noah Poponak, Alcoa’s lowered 2016 growth outlook for the Aerospace business doesn’t bode well for Aerospace stocks this earnings season. Alcoa reduced its Aerospace growth forecast from 8-9 percent to 6-8 percent and cut its large commercial aircraft growth projection from 15 percent to 9 percent, while maintaining previous growth forecasts for IGT and Building & Construction.

Related Link: Did Alcoa Really Beat EPS Consensus Estimates In Q1?

“Management highlighted short term inventory management as a risk in 4Q15 and again in 1Q16, in what now sounds like something that could be a longer trend,” Poponak explains.

Alcoa management noted heavy pricing pressure in the Aerospace industry these days. Alcoa even admitted to giving up $100 million in pricing to lock in $10 billion of contracts to assure the company's position in the market.

The stock market certainly doesn’t seem to like what is sees in Alcoa’s report. Alcoa is down more than 5 percent Tuesday morning.

Surprisingly, the iShares Dow Jones US Aerospace & Def. ETF (NYSE: ITA) has been resilient in Tuesday’s session, trading mostly flat on the day.

Disclosure: the author holds no position in the stocks mentioned.