AK Steel Holding Corporation AKS expects to post a loss in fourth-quarter 2015 on charges associated with the idling of its Kentucky Works blast furnace. The Ohio-based steel maker anticipates a net loss in the range of 33−38 cents per share for the quarter.
According to the company, the net loss will include an impact of around 42 cents per share for charges associated with the idling of the blast furnace and related steelmaking operations at its Ashland, Kentucky Works facility. Results will also include an impairment charge on AK Steel’s investment in its discontinued insurance operations.
AK Steel anticipates shipments in the fourth quarter to reduce sequentially owing to the current carbon steel spot market conditions, stemming from unfairly traded steel imports. The fourth quarter is expected to see shipments of around 1.6 million tons, or about 14% lower than the third quarter of 2015. The company took the decision of lowering its shipments in order to reduce sales to the carbon steel spot market to combat depressed pricing.
AK Steel anticipates fourth-quarter average selling price to be around $930 per ton, which is 2% higher than the third quarter due to greater mix of higher value products sold into the automotive market. However, in spite of the sequential rise, the company’s average selling price continues to be adversely affected by the oversupply of low-priced foreign steel imported into the U.S. market.
Further, first-quarter 2016 onward, the company anticipates to incur ongoing costs of around $2−$3 million per month owing to the idled Ashland Works operations. Management thinks that ongoing fixed costs related to the idled Ashland Works blast furnace and steelmaking operations will be more than offset by gains from cost-reduction initiatives, higher operating rates at its blast furnaces and a better product mix.
In addition to the strategic review of its business and operations, AK Steel has reevaluated its investment in the holding company of its discontinued insurance operations − AFSG Holdings, Inc. (“AFSG”). The company anticipates receiving a distribution of around $14 million from AFSG in the fourth quarter, subject to insurance regulatory clearance. Additionally, the company’s balance investment in AFSG has been determined to be impaired. In this regard, the company expects to take a non-cash charge of about $41 million, or 24 cents per share, to write off its remaining investment in AFSG.
AK Steel currently carries a Zacks Rank #3 (Hold).
Better-ranked companies in the basic materials space include Grupo Simec S.A.B. de C.V. SIM, Harmony Gold Mining Company Limited HMY and Richmont Mines Inc. RIC, all carrying a Zacks Rank #2 (Buy).
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