AK Steel Underperforms - Analyst Blog

AK Steel Holding Corporation (AKS) reported fourth quarter results incurring an adjusted after-tax loss of $54.5 million or 49 cents per share outperforming the Zacks Consensus Estimate of loss of 62 cents per share.

Fourth quarter results excluded one-time items of $63.7 million pre-tax charge related to the earlier announced AK Steel Holding Corporation and $9.1 million pre-tax charge pertaining to a retiree benefit settlement associated with the company's Butler (PA) Works.

Including these special items, the company reported a loss of $98.3 million or 89 cents per share compared with a net income of $39.8 million or 36 cents per share in the prior-year quarter.

For fiscal FY10, the company reported after-tax loss of $59.8 million or 54 cents per share outperforming the Zacks Consensus Estimate of a loss of 68 cents per share.

Fiscal FY10 excluded $72.8 million of charges mentioned above and a non-cash charge of $25.3 million, related to federal healthcare legislation. Including these charges full year EPS amounted to a net loss of $128.9 million or $1.17 per share compared with a net loss of $74.6 million or 68 cents in the prior year.

Total revenue as reported by the company increased 5.5% year over year to $1,390.6 million in the reported quarter. However, shipments decreased marginally by 0.6% year over year to 1,359,900 tons. The revenue as reported by the company was in line with the Zacks Consensus Estimate. The increase in total revenue was attributable to higher selling price.

For fiscal FY10, the company reported net sales of $5968.3 million, an increase of 46.4% year over year. Total revenue as reported by the company was slightly above the Zacks Consensus estimate of $5966 million.

Cost and Margins

The cost of goods sold increased 21.48% year over year to $1,373.80 million in the quarter and selling and administrative expenses increased 1.2% year over year to $52 million in the quarter. The company also reported an operating loss of $154.6 million, a decrease of 44% from the year-ago quarter, leading to an operating margin decrease of 453 basis points year over year to a negative 11.12%.

In fiscal FY10 cost of goods sold increased approximately 50% year over year to $5621.50 million and selling and administrative expenses increased 9.4% to $210.8 million from the prior year. Operating loss of the company increased by 91% year over year to $133.9 million. Consequently, operating margin decreased by 52 basis points year over year to a negative 2.24%

Financial Position

The company ended the year with a cash and cash equivalent of $216.8 million compared with $461.7 million as of December 31, 2009.

Cash from operating activities was an outflow of $132.4 million for fiscal 2010 compared with an inflow of $58.8 million for fiscal 2009.

The debt-to-capital ratio of A K Steel stood at 50.2% as of December 31, 2010, 38.4% as of September 30, 2010 and 36.6% as of June 30, 2010.

Outlook

A K Steel expects an increase of 7% quarter over quarter in the first quarter of fiscal 2011 leading to 1,450,000 tons and approximately 8% quarter over quarter increase in its average per-ton selling price compared with the fourth quarter price level. The expected increase is attributable to the anticipated higher contract and spot market prices and better product mix.

For iron ore, scrap and coal, the company expects higher price of raw material, likely to be offset by an improved operating performance. At the operating level, the company expects to break even for the first quarter of fiscal 2011.

About the Company

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) and Steel Dynamics Inc. (STLD).

 
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