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POSCO's 2Q Plagued by High Exp.

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Korean steel maker, POSCO (PKX) reported its second quarter 2012 financial results on July 24, 2012. The company’s second quarter net income plummeted 66% year over year  and 26.7% sequentially to KRW 466 billion or KRW 5,341 per share (US$1.16 per ADR).

Revenue: POSCO reported consolidated revenue of KRW 16,488 billion (US$14.35 billion) in the second quarter, reflecting a year-over-year decline of 3.3%. Revenue, however, increased 1.1% sequentially.

Crude steel production increased 1.3% year over year to roughly 9.41 million tons in the second quarter of 2012. Export ratio of finished product sales was 39.5% as compared with 33.6% in the year-ago quarter.

Margins: As a percentage of revenue, consolidated cost of goods sold jumped to 86.8% compared with 84.3% in the previous year quarter. Selling and administrative expenses soared 6.2% to KRW 928 billion (US$0.81 billion).

Operating margin decreased from 10.2% in the previous year quarter to 6.5% in the second quarter 2012. The margin, however, increased 170 basis points sequentially based on lower input of raw material costs and higher export prices.

Balance Sheet: Exiting the second quarter 2012, POSCO had cash and cash equivalents of approximately KRW 8,401 billion (US$7.26 billion), registering a sequential increase of 3.9%. Long-term liabilities decreased 3.2% sequentially to KRW 17,722 billion (US$15.32 billion).

Outlook: For fiscal year 2012, management expects consolidated revenue to be approximately KRW 70.4 trillion versus KRW 70.6 trillion expected earlier. Finished product sales are estimated to be roughly 35.4 million tons; crude steel production about 38.3 million tons (versus prior expectation of 38.4 million tons) while consolidated investments are likely to be approximately KRW 8.7 trillion (versus prior expectation of KRW 8.9 trillion).

Global steel demand is likely to grow by 3% year over year. Also, the company’s domestic market is expected to remain strong with demand increasing year over year.

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