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AK Steel (AKS) Reports Lower Q1 Loss, Improves Operations

AK Steel Holding Corporation AKS reported a net loss of $13.6 million or 8 cents per share in first-quarter 2016, much lower than a net loss of $306.3 million or $1.72 per share in the year-ago quarter. However, the year-ago quarter figure included a one-time charge of $256.3 million or $1.44 per share related to the company's investment in Magnetation LLC.

The company’s loss per share for the reported quarter was narrower than the Zacks Consensus Estimate of a loss of 15 cents, pulling a positive surprise of 46.67%.

Compared to the previous year, the company made significant headway in improving operations. Strategic decisions regarding exposure to the spot market, improving footprint and providing high-value products helped increase the adjusted EBITDA by 41% from the prior-year quarter.

The company generated sales worth $1.52 billion, down around 13% from the year-ago quarter. However, sales beat the Zacks Consensus Estimate of $1.48 billion by 2.6%.




Pricing and Shipments

Shipments for the quarter declined 5% year over year to 1,658,200 tons, indicating management’s decision to reduce exposure to the commodity market. Hot rolled carbon steel products, sold primarily in the spot commodity market, saw shipments decline 34% from the year-ago period. The low volume of shipments was partly offset by a 7% increase in higher value coated products sold to the auto sector.

Average selling price fell 8.5% and 1.6% to $914 per ton in the reported quarter from the prior-year quarter and previous quarter, respectively. The lower shipments and decline in average selling price were the fundamental causes of lower revenues in the reported quarter.

Costs and Margins

Operating costs decreased roughly 14.3% year over year to $1,470.8 million. The company reported an operating profit of $48 million for first-quarter 2016 compared with $33.8 million in the year-ago quarter.


AK Steel exited the quarter with cash and cash equivalents of $113 million, up roughly 99.7% year over year. Changes in working capital prompted an increase in cash flows from operating activities, helping the company add $56.4 million to its cash balance in the quarter. Long-term debt remained relatively consistent year over year, at $2,336.4 million.


AK Steel continues to be affected by global overcapacity in steel and cheap products from China. However, the company aims to provide competitive pricing even in the current economic environment. Price increases in the spot market for various steel products have been observed recently.

Although the company has reduced its exposure to the spot market, the hike should improve profitability in the segment as well as provide better prices in future contracts. Momentum in the company’s main consumer market, the auto sector, continues as industry experts expect light vehicle production to increase 3% in 2016 compared to 2015. This is expected to support demand for the company’s value-added products in this key market. The company has also developed a unique product in partnership with NanoSteel Company, with high future potential.

The long-term outlook of the company includes transition from supplying in the commodity market to becoming a prominent supplier of stainless grades produced with more difficulty for high-value customers.

Zacks Rank

AK Steel currently carries a Zacks Rank #2 (Buy).

Other well-ranked companies in the basic materials sector include Ternium S.A. TX, sporting a Zacks Rank #1 (Strong Buy), and ArcelorMittal MT and POSCO PKX, both carrying the same Zacks Rank as AK Steel.

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