AK Steel Holding Corporation (AKS) envisions higher loss in fourth-quarter 2012 as a sizable non-cash tax expense coupled with lower steel pricing is expected to dent its bottom line in the quarter. These factors are expected to lead to a loss (including tax charge) of between 67 cents and 72 cents per share in the quarter.
The company expects to incur a tax charge of roughly $35 million (or 33 cents a share) in the fourth quarter related to a valuation allowance for its deferred tax assets.
Moreover, the company expects its average per-ton selling price to slip roughly 5% in the fourth quarter from the third quarter level of $1,073 per ton. The expected sequential decline is partly triggered by lower spot market prices for carbon steel products as a result of weaker global economic and business conditions, and lower raw material surcharges. AK Steel also noted that lower raw material costs will not fully offset the decline in prices.
Shares of the Ohio-based steelmaker, which are down roughly 47% so far this year, tanked more than 17% to close at $4.50 yesterday.
On a positive note, AK Steel expects shipments to increase to roughly 1,375,000 to 1,400,000 tons in the fourth quarter from 1,363,500 tons in the third quarter. The company witnessed strong order book in October and higher pricing for carbon flat rolled steel products.
Separately, AK Steel announced the offering of $350 million senior secured notes due 2018 and $125 million exchangeable senior notes due 2019. The company also said that it is selling 25 million shares of its common stock. It plans to use a part of the net proceeds from the sale of the notes to repay debt.
AK Steel reported lackluster third quarter results last month. The company slipped into a bigger loss in the quarter, pummeled by weak pricing and a hefty tax expense. It posted a net loss of $60.9 million (or 55 cents a share) in the quarter compared with a loss of $3.5 million (or 3 cents a share) a year ago. AK Steel said that weak global economic conditions affected shipment volume and steel pricing in the third quarter.
AK Steel and other major players in the steel space such as Nucor Corporation (NUE) and U.S. Steel Corp. (X) are contending with weak steel demand, oversupply in the industry and pricing pressure. AK Steel is also hamstrung by weak construction and housing sectors. Moreover, it is exposed to macroeconomic uncertainties, stemming from the recessionary conditions in Europe and sluggish growth in Asia.
We currently have a long-term Neutral recommendation on AK Steel which is in tandem with a short-term Zacks #3 Rank (Hold).
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