Monday, July 25, 2011

AK Steel Holding Corp. (NYSE: AKS): Q2 Earnings Preview 2011

AK Steel Holding Corporation (NYSE: AKS), the third-largest US steelmaker, is scheduled to release second-quarter earnings before the opening bell on Tuesday, July 26, 2011. Analysts, on average, expect the company to report earnings of 50 cents per share on revenue of $1.81 billion. In the year-ago period, the company reported earnings of 24 cents per share on revenue of $1.60 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 first quarter of 2011, AK Steel returned to profitability, both at the operating income and net income levels. In the preceding first quarter, the West Chester, Ohio-based company's profit was $8.7 million, or 8 cents per share, compared to $1.9 million, or 2 cents per share, in the year-earlier quarter. Revenue increased 12% to $1.581 billion from $1.406 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 1 cent per share on revenue of $1.61 billion. 

At its last earnings call in April, AK Steel said that it expects shipments to be in the range of 1.50 million tons to 1.55 million tons, reflecting an increase over the first quarter. The company also expects second-quarter average per-ton selling price to be about 7% higher than the first quarter.

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. The World Steel Association expects global apparent steel demand to increase 5.9% to 1.4 billion metric tons in 2011. The operating profit is expected to be approximately $65 per ton for the second quarter of fiscal 2011.

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.

However, higher input costs, particularly iron ore, is eroding margins of the company remain major concerns.

Full Disclosure: None.

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