Tuesday, January 25, 2011

AK Steel Holding Corp. (NYSE: AKS): Q4 Earnings Preview 2010

AK Steel Holding Corporation (NYSE: AKS), the third-largest US steelmaker, is scheduled to release fourth-quarter earnings before the market open on Tuesday, January 25, 2011. Analysts, on average, expect the company to post a loss of 63 cents per share on revenue of $1.40 billion. In the year-ago period, the company reported earnings of 41 cents per share on revenue of $1.32 billion.

AK Steel Holding Corporation, through its subsidiaries, produces flat-rolled carbon, stainless, and electrical steels, and tubular products primarily in the United States and internationally.

In the preceding third quarter, the West Chester, Ohio-based company's net loss was $59.2 million, or 54 cents per share, compared to a profit of $6.2 million, or 6 cents per share, in the same quarter last year. Revenue increased to $1.58 billion from $1.04 billion.Analysts, on average, expected the company to post a loss of 34 cents per share on revenue of $1.54 billion. 

At its last earnings call in October, AK Steel said that it expects an 8% to 10% sequential decline in shipments to 1.3 million tons to 1.35 million tons due to higher inventories in the consumer markets and an approximately 4% decline in the average selling prices resulting from lower spot market pricing and changes in product mix. Particularly, carbon steel products prices are likely to remain under pressure. The company expects to incur an operating loss of about $80 per ton for the fourth quarter of 2010 due to lower shipments and selling prices as well as high iron ore and other raw material costs.

Steel demand and production have improved nicely in the past year due to increased government support and more balanced demand. The rebound in demand has been largely attributed to -- at least in the US -- stronger auto and non-residential construction sectors. China posted a significant surge in steel imports last month; however stricter measures may reduce the nation's demand going forward. Epochal floods have inundated the coal mines of Queensland, Australia, which supplies nearly 70% of the planet's coking coal, used to smelt iron ore in blast furnaces, and therefore a crucial steel ingredient.

A run-up in raw materials costs has helped steel mills press home higher prices with their biggest customers, especially auto makers and distribution centers. AK Steel pays nearly double for iron ore pellets compared with its integrated competitors, including United States Steel Corporation (NYSE: X), which owns its own pellets. The blast-furnace operator doesn't control its own sources of iron ore, like U.S. Steel. On the bright side, AK Steel has a more diverse product portfolio than its peers. The company is focusing on markets and products that have greater potential in the long term.

In terms of stock performance, AK Steel shares have lost nearly 32 percent over the past year.

Full Disclosure: None.
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