AK Steel’s Outlook: Can the New Management Team Deliver?
AK Steel Surprised with 3Q15 Profit: Can It Keep On Delivering?
AK Steel’s outlook
Previously in this series, we looked at several factors that could work in AK Steel’s (AKS) favor in an otherwise challenging and depressed steel market. Steel companies aren’t relying too heavily on a near-term recovery in the steel market. Instead, most steel companies are working to streamline their operations to stay afloat in the current scenario.
On January 1, 2016, AK Steel’s current CEO (chief executive officer) James Wainscott will step down, and the current CFO (chief financial officer) Roger Newport will take over as CEO. Jamie Vasquez, who joined AK Steel last year, will become the new CFO.
You can consider the Materials Select Sector SPDR ETF (XLB) to get a diversified exposure to the materials sector. Metal producers currently form ~8.6% of XLB’s portfolio. Nucor (NUE) forms ~2.5% of XLB’s portfolio.
What to expect
There are a couple of things that markets would like AK Steel’s (AKS) new management team to deliver on. One is aggressive cost controls. AK Steel has already indicated in its 3Q15 earnings conference call that it intends to target every cost element in the organization. Cutting down on costs is a grave necessity for AK Steel if the company is going to survive the current slump. United States Steel (X) is running an aggressive cost control program called Carnegie Way.
Automotive contracts
Another challenge for AK Steel’s management will be to negotiate the automotive contract business. A lot of these contracts are rolled over on a calendar year basis. The discussions on these contracts could very well be taking place between AK Steel and its automotive customers.
Several steel companies, including AK Steel (AKS) and ArcelorMittal (MT), have expressed apprehension over contract sales getting rolled over at lower prices. In all probability, next year’s contracts will be rolled over at lower prices, considering historically low spot steel pricing as well as falling raw material prices.
It will require some real resolve for steel companies to get these contracts rolled over at prices that allow them not only to stay afloat but to earn decent profits and cash to reward their shareholders. We’ll get more clarity on how the contracts are rolling over when we next hear from steel companies in their respective 4Q15 conference calls.
You can visit Market Realist’s Steel page for in-depth company and earnings overviews of all major companies in this sector.
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