AK Steel Cuts Loss, Ohio Outage Still Weighs
Steel maker AK Steel (AKS) posted a narrower loss in second-quarter 2013. The Ohio-based company recorded a net loss of $40.4 million or 30 cents a share in the quarter, down roughly 94% from a loss of $724.2 million or $6.55 a share a year-ago. The year-ago quarter’s results were dragged down by income tax charge of $735.6 million or $6.65 per share.
During the reported quarter, AK Steel took a charge of $21.6 million related to the planned maintenance outage at its Middletown Works blast furnace in Ohio. Moreover, it incurred $6.2 million associated with unplanned blast furnace outage in the quarter. AK Steel also recorded an inventory-related credit of $12.4 million in the reported quarter.
Barring one-time items (tax charges related to a valuation allowance for deferred tax assets), AK Steel’s loss for the quarter was 15 cents per share, lower than the Zacks Consensus Estimate of a loss of 35 cents.
Revenue, Pricing and Shipments
Revenues fell 8.7% year over year to $1,404.5 million in the reported quarter due to lower shipments to carbon spot and electrical steel markets. It missed the Zacks Consensus Estimate of $1,414 million.
Average selling price dropped 8% year over year to $1,061 per ton on account of lower spot market prices for carbon steel products, a decline in raw material surcharges and lower selling prices for electrical steel products. Shipments fell 0.9% year over year to 1,323,700 as lower shipments to the carbon spot and electrical steel markets more than offset higher shipments to automotive market.
Cost and Margins
Consolidated operating costs fell around 6% year over year to $1,390.8 million. Operating profit tumbled 76% year over year to $13.7 million, hurt by lower sales.
Financial Position
AK steel exited the quarter with cash and cash equivalents of $58.4 million, up 56% year over year. Long-term debt increased roughly 49% year over year to $1.4 billion.
Outlook
In line with its current practice, AK Steel plans to divulge a detailed guidance for the third quarter in Sep 2013. The company, however, said that it expects to take additional costs related to the unplanned maintenance outage at the Middletown Works blast furnace in the third quarter.
Middletown Works experienced an unexpected mechanical failure in Jun 2013. As a result, the blast furnace was taken offline to prevent any damage to the furnace and to position it for a restart once the repairs were completed. AK Steel used its existing inventory and its Butler Works and Ashland Works furnaces to service its customers during that period. The blast furnace was restarted on Jul 12.
AK Steel expects total uninsured losses of between $12 million and $17 million for second-half 2013. It also said that the timing and amount of any insurance recovery could not be accurately predicted currently and may occur after the third quarter.
While AK Steel is poised to gain from healthy automotive demand, we remain cautious factoring in weak steel pricing environment and a challenging operating backdrop in overseas markets.
AK Steel currently retains a short-term Zacks Rank #3 (Hold).
Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Nippon Steel & Sumitomo Metal Corp. (NSSMY). All of them hold a Zacks Rank #1 (Strong Buy).
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