AK Steel’s (AKS) Q4 Earnings Trump Estimates, Shares Up

AK Steel (AKS) saw lower profit in fourth-quarter 2014 on higher operating costs, but its earnings topped expectations. The company posted a profit of $13.5 million or 7 cents per share in the quarter, a roughly 62% fall from $35.2 million or 26 cents per share logged in the year-ago quarter.

Barring costs related to pension/other post retirement benefits and acquisition of Severstal Dearborn, the Ohio-based steel maker’s earnings were 14 cents per share, outstripping the Zacks Consensus Estimate of 6 cents.

AK Steel’s shares gained around 4.9% to close at $4.25 yesterday, after shooting up as much as around 7.9% in the trading session on the fourth-quarter earnings beat.

For the full year, the company registered adjusted net loss of 40 cents per share, higher than the Zacks Consensus Estimate of a loss of 15 cents.

AK Steel completed the planned outage at its Ashland Works blast furnace in Kentucky in the fourth quarter. The company made capital spending of $18 million and took charges of $31 million related to the outage and the resultant lower production levels in the quarter. AK Steel feels that the reline of the Ashland Works blast furnace hearth will better position it to provide stable blast furnace operations in the future.

Revenues, Pricing and Shipments

Revenues soared roughly 36% year over year to $1,997.6 million in the reported quarter, surpassing the Zacks Consensus Estimate of $1,924 million.

Shipments jumped around 42% year over year to 2,010,200 tons, aided by strong automotive demand and Dearborn acquisition which the company completed in Sep 2014. The acquisition contributed $477 million in sales and 596,000 tons of shipments in the quarter.

Average selling price slipped 4% year over year to $987 per ton in the reported quarter, impacted by increased proportion of hot-rolled coil shipments in the overall sales mix due to the Dearborn acquisition.

For 2014, sales climbed 17% year over year to $6.51 billion, ahead of the Zacks Consensus Estimate of $6.45 billion. Shipments jumped 16% year over year to 6,132,700 tons on Dearborn takeover and higher auto demand.

Cost and Margins

Operating costs jumped roughly 37% year over year to $1,923.1 million in the quarter, partly due to costs associated with blast furnace outage. Operating income for the quarter rose around 18% year over year to $74.5 million, aided by higher sales.

Financials

AK Steel ended 2014 with cash and cash equivalents of $70.2 million, up roughly 55% year over year. Long-term debt climbed 63% year over year to $2,452.5 million.

Outlook

AK Steel, which is among the prominent steel makers along with U.S. Steel (X), Nucor (NUE) and Steel Dynamics (STLD), plans to announce detailed guidance for first-quarter 2015 in March.

AK Steel is expected to continue to benefit from strength in the automotive market and higher shipment of steel products to automakers. The buyout of Dearborn has provided the company an access to highly modernized and upgraded steelmaking equipment and facilities and is expected to improve its credit profile and liquidity. However, AK Steel remains exposed to a volatile steel pricing environment.

AK Steel currently carries a Zacks Rank #4 (Sell).