Dahlman Rose Comments On AK Steel's Improving Outlook

AK Steel AKS reported 4Q10 EPS results above Dahlman Rose and the consensus estimates. The company should start to see a substantial improvement in its 2011 results starting in 2Q11 as it realizes the full effect of the improved pricing environment. Results were ahead of Dahlman's estimate of a per share loss of ($0.64) and the consensus estimate of a per share loss of ($0.63). Results compare with a per share loss of ($0.54) and EPS of $0.35 in the previous quarter and year ago period, respectively. Variance from the estimate was primarily due to lower operating costs and AK Steel's improved product mix during the quarter, enabling it to ship a greater proportion of value added products and reap higher margins. For 1Q11, the company expects shipments to increase by 7% sequentially and average selling price to increase by 8%, led by higher contract and spot prices and improved mix. The company expects higher raw material costs to increase average costs per ton by $45 q/q. Overall, management guided toward break even results at the operating level. Dahlman Rose is increasing its 2011 EPS estimate to $0.95 from $0.80 based on its recently revised steel price outlook, which it had not previously incorporated. Dahlman is now forecasting an average hot rolled coil price of $700 - $750/shot ton versus a prior estimate of $650 - $675/ short ton. It is initiating a 1Q11 EPS estimate of ($0.05) and a 2012 EPS estimate of $1.50. AKS is trading higher at $16.29