POSCO's 4Q Net Results Dip Q/Q - Analyst Blog

Korean steelmaker, POSCO (PKX) reported its fourth quarter and fiscal year 2010 financial results on January 13, 2011. Net income plummeted 49.6% sequentially to KRW 526 billion or KRW 6,029 per share (US$1.33 per ADR). The fall was due largely to weak global demand and higher raw material costs.

Net income for the fiscal year 2010 jumped 32.5% year over year to KRW 4,203 billion (US$3.6 billion). Earnings per share were KRW 48,172 (US$10.38 per ADR).

Revenue

POSCO reported healthy top-line results, with revenue totaling KRW 9,176 billion (US$8.1 billion), up 25.9% year over year and 7.6% sequentially. The sequential growth was attributable to higher sales volume. Revenue for the fiscal year 2010 was KRW 32,582 billion (US$28.1 billion), up 20.9% year over year.

Consolidated revenue in the fourth quarter was KRW 16,341 billion (US$14.40 billion). Revenue in the fiscal year 2010 was KRW 60,521 billion (US$52.2 billion), up 64.2% year over year.

Crude steel production jumped 14.2% year over year to 33.7 million tons in the fiscal year 2010 due to facility expansion. Finished product sales registered a 10.6% growth to 31.5 million tons. Export ratio remained roughly stable at 35.2%.

The year-over-year sales growth was driven by a solid growth across all product categories, especially Cold Rolled (up 20.9%), STS (up 23.8%), Electrical Steel (up 16.7%) and others (up 24.8%). However, Plate sales were weak, down 2.2% year over year.

Margins

As a percentage of revenue, POSCO's cost of goods sold declined to 79.9% in 2010 compared with 83.8% in the fiscal year 2009. EBITDA margin grew from 19.3% in 2009 to 22.6% in 2010.

Operating margin in the fourth quarter dropped to 7.1% versus 13.0% in the third quarter of 2010 and 21.8% in the comparable quarter of 2009 due to rising raw material prices. Operating margin for 2010 was 15.5%, up from 11.7% in the fiscal year 2009. Interest expense for 2010 was KRW 88 billion (US$0.08 billion), up from KRW 80 billion (US$0.06 billion) in 2009.

Consolidated operating margin in the fiscal year 2010 was 9.5% versus 10.5% in the fiscal year 2009.

Balance Sheet

Exiting the fiscal year 2010, POSCO's cash and cash equivalents fell 52.1% year over year to KRW 3,233 billion (US$2.85 billion) while long-term debt balance grew 14.6% year over year to KRW 7,284 billion (US$6.4 billion).

POSCO's investments in the fiscal year 2010 amounted to KRW 9.4 trillion (US$0.01 trillion).

Outlook

For fiscal year 2011, POSCO expects consolidated revenue of approximately KRW 66 trillion while POSCO's revenue is targeted to reach KRW 36 trillion.  It is anticipated that  Product sales would amount to  34  million tons and crude steel production to 36 million tons. Consolidated investments are likely to be approximately KRW 9.8 trillion with the company's investments totaling KRW 7.3 trillion. The company targets to save costs amounting to KRW 800 billion.

POSCO is the largest fully integrated steel producer in Korea and one of the premier steel producers in the world. Prime competitors of the company are Arcelor Mittal (MT) and privately held Hyundai Steel Company.

 
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