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Why Is AK Steel (AKS) Down 29.7% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for AK Steel (AKS). Shares have lost about 29.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AK Steel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AK Steel's Q2 Earnings Beat, Sales Miss Estimates

AK Steel reported net income of $66.8 million or 21 cents per share in the second quarter of 2019, up 18% from $56.6 million or 18 cents in the prior-year quarter. Earnings per share topped the Zacks Consensus Estimate of 6 cents.

Net sales of $1,680.5 million in the quarter fell around 3.8% year over year and missed the Zacks Consensus Estimate of $1,769.2 million.

Per the company, the downside was mainly caused by reduced shipments to the automotive market along with lower spot market selling prices. These were partly offset by higher selling prices to the automotive market.

Pricing and Shipments

Flat-rolled steel shipments in the quarter were down around 3.4% year over year to 1,391,400 tons. Average selling price per ton for flat-rolled steel was $1,102 compared with $1,101 in the year-ago quarter.

Financials

AK Steel exited the quarter with cash and cash equivalents of $42.2 million, down 8.3% year over year. The company’s long-term debt declined around 4.4% year over year to $1,946.2 million.

Cash flows from operating activities was $136.2 million for the first half, down 27.3% year over year.

Guidance

AK Steel trimmed its profit forecast for 2019 factoring in the change in hot-rolled carbon spot market pricing. The company sees net income in the range of $41-$61 million or 13-20 cents per share for the full year, down from its previous view of $76-$96 million or 24-30 cents per share.

Adjusted net income for 2019 is projected in the range of $118-$138 million or 37-44 cents per share, down from previous expectation of $153-$173 million or 48-54 cents per share.

Adjusted EBITDA is expected between $470 million and $490 million, down from the company’s prior view of $505-$525 million.

AK Steel continues to expect planned maintenance outage expenses in the band of $70-$80 million for 2019, with a significant portion likely to be incurred in the fourth quarter.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -36.36% due to these changes.

VGM Scores

Currently, AK Steel has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AK Steel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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