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AK Steel Honored as Best Supplier

Zacks Equity Research

Chrysler Group LLC has awarded AK Steel Holding Corporation (AKS) with the Metallic "Supplier of the Year" award for its outstanding performance last year, affirming the steel company’s place among the top suppliers to the renowned car maker.

AK Steel’s commitment towards providing commercial support to Chrysler along with its exceptional quality of products and timely delivery were the primary reasons behind the award.

For Supplier of the Year, Chrysler rates its suppliers on various parameters such as quality, delivery, service and costs, as well as recommendations from its senior management team. The honor awarded to AK Steel suggests it has strong customer satisfaction values.

The news comes as a positive for AK Steel after it slipped into the red in the recently reported first quarter. Although the company met the Zacks Consensus Estimate on bottom line, it failed to match the top line expectations due to lower shipments.

However, AK Steel witnessed an improvement in market conditions in the first quarter. Average selling price jumped 6% sequentially and 3% year over year, primarily driven by improved product mix, better contract sales and higher prices for certain products.

The company expects to sustain the momentum in the second quarter, and as such, expects to post a profit. Increased strength in the automotive market along with anticipation of higher shipments and lower raw material costs are the driving factors behind the company’s expectation of getting back into the black.  

We expect higher shipments of carbon steel products to the automotive market, which constituted one-third of its sales in the first quarter, to support the company’s results in 2012. However, challenges such as weakness in the construction and housing sectors along with issues arising out of Europe and muted growth in Asia might impact AK Steel’s earnings power.

We currently have a long-term (more than 6 months) Neutral recommendation on AK Steel. The company, which competes with Nucor Corporation (NUE), U.S. Steel Corp. (X) and Steel Dynamics Inc. (STLD), currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.

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