AK Steel Holding Corporation AKS steeply declined Thursday on a 150-percent earnings-per-share miss and 29-percent earnings before interest, taxes, depreciation and amortization miss.
“However, what we see as more troubling, and indicative of a U.S. steel sector in trouble, is AKS’ cash flow story,” Axiom Capital analyst Gordon Johnson wrote in a morning note.
Between the second and third quarter, the firm’s cash balance dropped from $136.3 million to $69.3 million — and that was with hot-rolled coil steel an attractive $600 per unit and Section 232 threats diminishing import competition.
“The company burned more cash than it currently has on hand,” Johnson wrote, adding that AKS has a $150 million bond due in 2019. “In the spirit of Halloween, this is scary.”
The Real Problem
He attributes the concern not to imports but to weakening demand, an issue unrepairable by federally imposed tariffs. By Axiom estimates, construction and energy clients are oversaturated with steel, and end markets “are in disfavor of the U.S. steel industry at present.”
“We would be short steel names across the board not just on poor 3Q17 results, but on what we think will be disappointing 1H18 demand,” Johnson wrote.
Atpublication, AK Steel shares were down 16.75 percent at $4.87, while United States Steel Corporation X traded down 5.75 percent to $24.93 in sympathy.
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