Korean steel producer POSCO (PKX) reported disappointing third-quarter 2014 results, with net earnings plummeting 60.3% year over year to KRW 224 billion (US$0.22 billion). Sequentially, net earnings declined 54% due to the adverse impact of foreign currency movements. Earnings came in at KRW 2,567.3 per share or US$0.63 per American Depository Receipt.
Revenues
POSCO generated revenues of KRW 16,270 billion (US$15.9 billion), increasing 7.4% year over year but down 2.6% sequentially.
The company’s crude steel production totaled 9.5 million tons, reflecting an increase of 6.7% year over year. Sequentially, production grew 2.9%. Finished product sales improved 4.9% year over year and 1.5% sequentially. Export ratio of finished product sales was 48.5%.
Margins
POSCO’s cost of sales increased 5.96% year over year and represented 88.6% of total revenue, down from 89.8% in the year-ago quarter. Gross profit climbed 120 basis points (bps) year over year. Selling and administrative expenses grew 7.1% to KRW 980 billion (US$0.96 billion).
Operating profit was KRW 879 billion (US$0.86 billion), up 38.9% year over year and 4.8% sequentially. The improvement was driven by higher profits in steel and energy businesses. Operating margin was 5.4%, improving 120 bps year over year.
Balance Sheet
Exiting third-quarter 2014, POSCO had cash and financial goods balance of KRW 5,530 billion (US$5.3 billion) versus KRW 5,456 billion (US$5.4 billion) recorded at the previous-quarter end. Non-current liabilities increased 1.8% to KRW 18,545 billion (US$17.7 billion).
Outlook
For 2014, POSCO anticipates consolidated revenues to reach approximately KRW 65.5 trillion, up from the earlier expected KRW 64.5 trillion. Finished product sales are estimated to be roughly 34.8 million tons, a slight increase from the prior forecast of 34.6 million tons. Crude steel production is projected to be nearly 37.7 million tons versus 37.5 million tons predicted earlier. Consolidated investments are likely to be KRW 6.2 trillion as against KRW 6.1 trillion previously estimated.
With a market capitalization of $23.4 billion, POSCO presently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry are Evraz Highveld Steel & Vanadium Ltd. (HGVLY), LB Foster Co. (FSTR) and Mechel OAO (MTL). While Evraz Highveld Steel & Vanadium sports a Zacks Rank #1 (Strong Buy), both LB Foster and Mechel OAO carry a Zacks Rank #2.
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