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POSCO's 3Q Benefits from FX Gains

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Korean steel maker, POSCO (PKX) reported its third quarter 2012 financial results on October 23, 2012. The company’s third quarter’s net income increased 215.7% year over year and 55.2% sequentially to KRW 723 billion or KRW 8287 per share (US$1.84 per ADR). The results also surpassed the Zacks Consensus Estimate of US$1.45 per ADR.

Revenue: POSCO’s consolidated revenue in the third quarter declined 7.2% year over year and 4.5% sequentially to settle at KRW 15,739 billion (US$13.9 billion). The annual decline can be attributed to roughly a 7% decline in steel revenue, offset partially by a 2.7% increase in revenues derived from non-steel sources.

Crude steel production increased 2.0% year over year to about 9.7 million tons as market exploration and product development boosted results in the third quarter of 2012. Export ratio of finished product sales was 41.6% as compared with 41.7% in the year-ago quarter.
Margins: As a percentage of revenue, consolidated cost of goods sold jumped to 87.7% compared with 86.6% in the previous year quarter. Selling and administrative expenses soared 3.8% to KRW 926 billion (US$0.82 billion). Operating margin decreased from 7.6% in the previous year quarter to 6.7% in the third quarter 2012.

Balance Sheet: Exiting the third quarter 2012, POSCO had cash and cash equivalents of approximately KRW 8,710 billion (US$7.9 billion), registering a sequential increase of 3.7%. Long-term liabilities decreased 5.2% sequentially to KRW 16,796 billion (US$15.2 billion).

Outlook: For 2012, management expects consolidated revenue to be approximately KRW 67.2 trillion versus KRW 70.4 trillion expected earlier. Finished product sales are estimated to be roughly 35.2 million tons (earlier expected 35.4 million tons); crude steel production about 38.2 million tons (versus prior expectation of 38.3 million tons) while consolidated investments are likely to be approximately KRW 8.4 trillion (versus prior expectation of KRW 8.7 trillion).

Global steel demand is likely to grow by 2% year over year in 2012 and 3% in 2013. Also, the company’s domestic market is expected to remain strong with demand increasing year over year.

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