AK Steel (AKS) logged a net loss of $7.2 million or 5 cents per share in third-quarter 2014 compared with a loss of $31.7 million or 23 cents per share in the year-ago quarter. Losses narrowed year over year as the company saw a healthy rise in sales in the quarter on higher shipments, offsetting an increase in operating costs.
Barring acquisition-related costs, the Ohio-based steel maker’s earnings were 12 cents per share, topping the Zacks Consensus Estimate of 9 cents.
Despite the forecast-topping results, AK Steel’s shares fell around 14.7% to close at $6.34 yesterday after the company warned that a planned outage at its Ashland Works blast furnace in Kentucky will hurt results in the fourth quarter.
Revenues, Pricing and Shipments
Revenues climbed roughly 20% year over year to $1,593.8 million in the reported quarter, well ahead of the Zacks Consensus Estimate of $1,485 million.
Shipments went up around 18% year over year to 1,462,900 tons, aided by shipments from Severstal Dearborn acquisition and increased carbon steel shipments to the automotive and infrastructure and manufacturing markets.
Average selling price increased roughly 2% year over year to $1,089 per ton in the reported quarter mainly due to increased spot market price of carbon steel products.
Cost and Margins
Operating costs rose roughly 17% year over year to $1,530.1 million due to expenses related to the company’s acquisition of Severstal Dearborn and unfavorable impact of unplanned outage at Ashland Works.
Operating income for the reported quarter jumped nearly two-and-a-half-fold year over year to $63.7 million.
Financials
AK Steel exited the quarter with cash and cash equivalents of $60.8 million, down roughly 7% year over year. Long-term debt climbed 70% year over year to $2,406.4 million.
Outlook
AK Steel plans to announce detailed fourth-quarter 2014 guidance in Dec 2014. The company, however, said that it expects fourth-quarter results to be dragged down by a planned outage at its Ashland Works blast furnace that started in late Oct 2014 and is expected to last roughly 28 days. The outage, which was earlier planned to occur in 2015, will include a reline of the blast furnace hearth.
AK Steel expects that the outage at Ashland Works will impact its results in the fourth quarter with respect to production, shipments, operating costs and margins. The company expects to make capital spending of $20 million and take charges of roughly $30 million related to the outage and the resultant lower production levels in the quarter.
AK Steel is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. The company, in Sep 2014, closed its acquisition of Severstal Dearborn for $707 million. The buyout 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.
AK Steel is a Zacks Rank #3 (Hold).
Better-ranked companies in the steel space include United States Steel Corp. (X), Nucor Corporation (NUE) and Steel Dynamics Inc. (STLD). While United States Steel retains a Zacks Rank #1 (Strong Buy), Nucor and Steel Dynamics carry a Zacks Rank #2 (Buy).
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