AKS AK Steel Holding Corp

AK Steel Holding Corporation (AKS) posted its third-quarter 2011 results, delivering net loss of $3.5 million or $0.03 cents compared with net loss of $59.2 million or $0.54 cents during the year-ago quarter. However, results were below the Zacks Consensus Estimate of $0.00 cents per share.

Third-quarter 2011 results include after-tax expenses of approximately $6.2 million, or approximately $0.05 per diluted share, for costs related to the previously reported incident involving an electric steelmaking furnace at the Butler Works, which was damaged on July 1, 2011.

Net sales, as reported by the company, were $1,585.8 million on the shipments of 1,368,800 tons versus $1,575.9 million and 1,465,800 tons in the prior-year quarter. Net sales also missed the Zacks Estimate of $1,662 million. Average selling price for the third quarter of 2011 was $1,158 per ton, up 8% year over year, but down 2% sequentially.

Shipments

Value-added shipments for stainless/electrical increased to 229.3 tons compared with 226.9 tons in the prior-year quarter. Value-added shipments for Coated, Cold-rolled and Tubular product decreased to 577.2, 278.3 and 32.4 tons, respectively, compared with 624.4, 322.5 and 33.2 tons, respectively in the year-earlier quarter.

Non value-added shipments including Hot-rolled increased to 222.6 tons from 213.6 tons in the year-earlier quarter. Non-value-added shipments including secondary products decreased to 29.0 tons from 45.2 tons in the prior-year quarter.

Cost and Margins

Cost of sales, as reported by the company, was $1,472.6 million versus $1,576.1 million in the year-earlier quarter. Selling and administrative expenses increased mildly to $55.7 million from $52.0 million in the year-ago quarter.

Operating income, as reported by the company, increased to $11.4 million from a loss of $102.5 million in the prior-year quarter.

Financial Position

Cash and cash equivalents reduced to $58.7 million as of September 30, 2011 versus $216.8 million as of December 31, 2010. Long-term debt of the company decreased marginally to $650.2 million as of September 30, 2011 versus $650.6 million as of December 31, 2010.

The debt-to-capitalization ratio of the company stood at 50.8% as of September 2011 versus 50.2% as of June 30, 2010 and 50.2% as of December 31, 2010.

As of September 30, 2011, cash from operating activities was $355.4 million compared with $176.5 million as of September 30, 2010.

Dividend

The board of directors of AK Steel paid a quarterly cash dividend of $0.05 per share of common stock to shareholders of record as of August 15, 2011.

Outlook

Due to continued uncertainty and volatility with respect to economic conditions in the U.S. and in other markets served by the company, AK Steel is not providing an outlook for the company’s fourth-quarter results at this time.  However, the company stated that it intends to provide fourth-quarter guidance later during the quarter.

Our Take

AK Steel is uniquely positioned to focus on products with high margins. Electrical steel continues to be the company’s strongest product line, with demand recovering in the U.S. and abroad, though at a slower rate. AK Steel is operating its plants at above 80% capacity and is well positioned to serve the end markets when the demand rebounds.

However, higher input costs, particularly iron ore, is eroding margins of the company. Iron ore pricing concerns have led to a negative outlook for steel manufacturers. A K Steel currently retains a Zacks #3 Rank (short-term Hold rating).

Ohio-based AK Steel Holding Corporation is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products. It operates 7 steel-making and finishing plants in Ohio, Pennsylvania, Indiana and Kentucky.

The basic raw materials required for the steel manufacturing are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc, limestone and carbon and stainless steel scrap.

Natural gas, electricity and oxygen are the sources of power for steel manufacturing operations. The company competes with Nucor Corporation (NUE), U.S. Steel Corp. (X) and Steel Dynamics Inc. (STLD).

Peer Comparison

U.S. Steel Corp. (X) reported third-quarter 2011 adjusted net income of $118 million or 72 cents per share, exceeding the Zacks Consensus Estimate of 55 cents per share. The net income excluded $96 million or 57 cents per share of net foreign currency losses, primarily related to the accounting re-measurement of the inter company loans. Including this net income came in at $22 million, or 15 cents per diluted share versus net loss of $51 million or loss of 35 cents per diluted share.

Revenue in the quarter improved 13% year over year to $5.1 billion from $4.5 billion, in line with the Zacks Consensus Estimate of $5.1 billion.

 
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