Neutral on AK Steel - Analyst Blog
08 2월 2012 - 2:46AM
Zacks
We maintain our Neutral recommendation on AK Steel
Holding Corporation (AKS), a leading producer of
flat-rolled carbon, stainless, electrical steel and tubular
products.
AK Steel reported fourth-quarter 2011 net loss of $0.26 per
share, beating the Zacks Consensus Estimate of a loss of $0.39 per
share. Net sales were $1,509.2 million on shipments of 1,409,900
tons versus $1,390.6 million on 1,359,900 tons in the prior-year
quarter. Net sales were also above the Zacks Consensus Estimate of
$1,481 million.
AK Steel mainly focuses on products with high margins. Carbon,
stainless and electrical steel continue to be the company’s
strongest product lines. The revival in demand in the U.S. and
abroad bode well for the company.
AK Steel continues to experience growth in the average selling
price for the company’s products. The company posted an average
selling price of $1,070 per ton in the fourth quarter of 2011,
approximately 5% higher than $1,022 per ton reported in the fourth
quarter of 2010.
However, AK Steel’s cost structure is higher than its peer group
driven by greater reliance on external supply of raw materials,
such as carbon scrap, purchased slabs, iron ore and purchased coke.
Iron ore is the key raw material in steel manufacturing operations.
AK Steel pays nearly double for iron ore pellets compared to its
integrated competitors, who consume their own pellets.
AK Steel has significant pension fund requirements. Since 2005,
the company has made total pension contributions of over $1.2
billion. During 2009 and 2010, AK Steel made pension contributions
of $210 million and $110 million, respectively. The company made
pension contributions of $170.0 million during the first half of
2011 to satisfy its required annual pension contributions for
2011.
Moreover, AK Steel increased its total pension fund
contributions since 2005 to over $1.3 billion. Currently, AK Steel
estimates that its required annual pension contributions will
average approximately $180 million for fiscal 2012 and $260 million
for fiscal 2013.
Due to continued uncertainty and volatility in economic
conditions, AK Steel has not provided any outlook for first-quarter
2012 at this time, but intends to provide guidance later. We expect
the company’s core operating results to turn profitable by the
first quarter of 2012, as higher carbon steel prices will more than
offset higher raw material costs and weaker electrical steel
prices.
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
the company’s margins. 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 company competes with
Nucor Corporation (NUE), U.S. Steel
Corp. (X) and Steel Dynamics Inc.
(STLD).
AK STEEL HLDG (AKS): Free Stock Analysis Report
NUCOR CORP (NUE): Free Stock Analysis Report
STEEL DYNAMICS (STLD): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
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AK Steel (NYSE:AKS)
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