AK Steel Holding Corporation (AKS) posted its first quarter results delivering an EPS of 8 cents compared with 2 cents during the year-ago quarter and striding ahead of the Zacks Consensus Estimate of a loss of a cent.
Net sales as reported by the company were $1,581.1 million on the shipments of 1,423,100 tons versus $ 1,405.7 million and 1,385,800 tons in the prior-year quarter. It however, missed the Zacks Estimate of $1,609 million. The improvement in the shipments was mainly due to higher pricing which increased 9% on a year over year basis to $1,109 per ton.
Shipments
Value-added shipments including stainless/electrical, Cold-rolled and Tubular product increased to 224.4, 344.8 and 34.2 tons respectively, compared with 212.1, 281.8 and 28.7 tons, respectively in the year-earlier quarter. However, shipments of coated product came down to 621.8 tons from 635.2 tons in the year-ago quarter.
Non value-added shipments including Hot-rolled decreased to 161.1 tons from 193.7 tons in the year-earlier quarter. On the contrary, non value-added shipments including secondary products increased to 36.8 tons from 34.3 tons in the prior-year quarter.
Cost and Margins
Cost of sales as reported by the company was 1,459.5 million versus $1,243.6 million in the year-earlier quarter. Selling and administrative expenses increased mildly to $55.4 million from $ 54.2 million in the year-ago quarter.
Operating income as reported by the company came down drastically to $19.5 million from $57.6 million in the prior-year quarter. Consequently, operating margins also tumbled 300 basis points year over year to 1% in the quarter.
Financial Position
Cash and cash equivalents reduced to $54.1 million as of March 31, 2011 versus $216.8 million as of December 31, 2011. Long-term debt of the company decreased marginally to $650.5 as of March 31, 2011 versus $650.6 million as of December 31, 2011.
The debt-to-capitalization ratio of the company stood at 51% as of March 2011 versus 50.2% as of December 31, 2010 and 38.4% as of September 30 2010.
Cash from operating activities was an outflow of $197.4 million compared with an outflow of $107.2 million at the end of first quarter of fiscal 2011.
Outlook
According to management shipments in the second quarter of fiscal 2011 are expected in the range of 1,500,000 and 1,550,000 tons, indicating a strong increase over the first quarter shipments. The company also anticipates its average per-ton selling price to be 7% higher compared with the first quarter. The operating profit is expected to be approximately $65 per ton for the second quarter of fiscal 2011.
Our Take
AK Steel is uniquely positioned to focus on products with high margins. Electrical steel continues to be the company’s strongest product line, with demand recovering in the U.S. and abroad, though at a slower rate. AK Steel is operating its plants at above 80% capacity and is well positioned to serve the end markets when the demand rebounds.
However, higher input costs, particularly iron ore, is eroding margins of the company. Iron ore pricing concerns have led to a negative outlook for steel manufacturers. A K Steel currently retains a Zacks #1 Rank (short-term Strong Buy rating).
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 basic raw materials required for the steel manufacturing are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc, limestone, and carbon and stainless steel scrap. Natural gas, electricity and oxygen are the sources of power for steel manufacturing operations. The company competes with companies like Nucor Corporation Common Stock (NUE) and Steel Dynamics Inc. (STLD).
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