AK Steel Holding Corporation (AKS) posted its second-quarter 2011 results, delivering an EPS of 30 cents compared with 24 cents during the year-ago quarter. However, the EPS was below the Zacks Consensus Estimate of 50 cents per share.
Net sales, as reported by the company, were $1,791.9 million on the shipments of 1,497,000 tons versus $1,596.1 million and 1,449,400 tons in the prior-year quarter. Net sales also missed the Zacks Estimate of $1,804 million Average selling price for the second quarter of 2011 was $1,185 per ton, up 8% from $1,101 per ton reported in the second quarter of 2010.
Shipments
Value-added shipments including stainless/electrical, Cold-rolled and Tubular product increased to 245.7, 318.1 and 32.8 tons, respectively compared with 218.9, 284.7 and 32.6 tons, respectively in the year-earlier quarter. However, shipments of coated product came down to 631.3 tons from 685.2 tons in the year-ago quarter.
Non value-added shipments including Hot-rolled increased to 238.5 tons from 184.1 tons in the year-earlier quarter. On the contrary, non-value-added shipments including secondary products decreased to 30.6 tons from 43.9 tons in the prior-year quarter.
Cost and Margins
Cost of sales, as reported by the company, was 1,623.0 million versus $1,428.0 million in the year-earlier quarter. Selling and administrative expenses increased mildly to $53.9 million from $52.6 million in the year-ago quarter.
Operating income, as reported by the company, increased to $68.5 million from $65.6 million in the prior-year quarter. Consequently, operating margins increased 30 basis points year over year.
Financial Position
Cash and cash equivalents reduced to $45.6 million as of June 30, 2011 versus $216.8 million as of December 31, 2010. Long-term debt of the company decreased marginally to $650.3 million as of June 30, 2011 versus $650.6 million as of December 31, 2010.
The debt-to-capitalization ratio of the company stood at 50.2% as of June 2011 versus 50.2% as of December 31, 2010 and 38.4% as of September 30 2010.
Cash from operating activities was $163 million compared with $147.2 million at the end of second quarter of fiscal 2011.
Dividend
The board of directors of AK Steel declared a quarterly cash dividend of $0.05 per share of common stock, payable on September 9, 2011 to shareholders of record as of August 15, 2011.
Outlook
According to management, shipments in the third quarter of fiscal 2011 are expected in the range of 1,400,000 and 1,450,000 tons. The company also anticipates its average per-ton selling price to be about 1% lower and that of raw material costs to be a bit higher compared with the second quarter. The operating profit is expected to be approximately $15 per ton for the third 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 #3 Rank (short-term Hold 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), U.S. Steel Corp. (X) and Steel Dynamics Inc. (STLD).
Peer Comparison
U.S. Steel reported second-quarter 2011 net operating profit of $1.33 per share versus a net operating loss of 17 cents in the year-ago quarter. Results also exceeded the Zacks Consensus Estimate of $1.26 per share. Net income was $222 million in the quarter versus net loss of $25 million in the second quarter of 2010.
Revenue in the quarter also improved 9.4% year over year to $5.1 billion from $4.7 billion. Results were driven primarily by higher average realized prices and stable raw materials costs in Flat-rolled segment.
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