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X and AKS Q3 Earnings: Here are the Key Predictions

A couple of major steel companies are gearing up to report their quarterly numbers on Oct 31.

The steel industry remains on a slow road to recovery. While overall demand fundamentals for steel remain healthy, the industry is still challenged by sustained overcapacity. The global steel industry continues to reel under the effects of excess capacity — the biggest obstacle to persistent growth and profitability.

Moreover, the U.S. steel industry remains hamstrung by high levels of imports. The American market continues to be inundated with cheap steel imports from overseas producers despite a raft of punitive trade actions. A surge in steel imports put downward pressure on U.S. steel prices during the third quarter. Continued import pressure did not allow steel pricing to keep pace with higher raw material costs during the quarter.

Nevertheless, the steel industry is poised to benefit from solid demand in the United States and emerging markets. Continued momentum in the automotive space and a recovery across housing and commercial construction markets are the other key tailwinds for this space.

As per the Zacks Industry classification, the steel industry is grouped under the broader Basic Materials sector. Overall third-quarter earnings for the sector are projected to decline 3.5% while revenues are expected to increase 10.7%, per the latest Earnings Preview.

We take a sneak peek at two steel companies that are scheduled to report their third-quarter results on Oct 31.

United States Steel Corporation X will report after the bell. It has an Earnings ESP of +5.97% as the Most Accurate estimate stands at 71 cents while the Zacks Consensus Estimate is pegged at 67 cents. U.S. Steel carries a favorable Zacks Rank #3 (Hold) which when combined with a positive ESP, makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

U.S. Steel beat the Zacks Consensus Estimate in two of the trailing four quarters, while missed in the other two. This resulted in an average positive surprise of 584.1%.

The Zacks Consensus Estimate for revenues for the to-be-reported quarter stands at $3,042 million, reflecting an increase of 13.3% from the year-ago quarter.

Net sales for U.S. Steel’s Flat-Rolled segment is projected to witness a 5.4% year-over-year rise as the Zacks Consensus Estimate is pegged at $2,094 million. The Zacks Consensus Estimate for net sales for the U.S. Steel Europe (USSE) unit is pegged at $662 million, reflecting a 14.9% year over year rise. Moreover, the company’s Tubular segment’s net sales are expected to increase by two-and-a-half fold year over year as the Zacks Consensus Estimate stands at $283 million.

With respect to pricing, the Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for is pegged at $735 per net ton, representing a 2.4% year-over-year increase. But this reflects a 0.9% decline from the sequentially prior quarter.

The Zacks Consensus Estimate for average realized price for the USSE unit stands at $586 per net ton, representing a 16.5% year over year rise. However, this hints at a 5.4% decline from the second quarter. Average realized price for the Tubular segment is expected to increase 22.8% year over year and 4.4% sequentially as the Zacks Consensus Estimate stands at $1,288 per net ton.

U.S. Steel is expected to gain from healthy automotive demand. Also, U.S. Steel is aggressively pursuing actions to improve its cost structure through its “Carnegie Way” program that may lend some support to its third-quarter results. However, the company is facing certain operational issues in the Flat-Rolled segment. (Read more: U.S. Steel Warms Up to Q3: Another Earnings Beat Coming?)

United States Steel Corporation Price and EPS Surprise

United States Steel Corporation Price and EPS Surprise

AK Steel Holding Corporation AKS, which will report ahead of the bell, has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 3 cents. The stock carries a Zacks Rank #3, but its 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AK Steel beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 97.9%.

The Zacks Consensus Estimate for revenues for the to-be-reported quarter stands at $1,504 million, reflecting an expected increase of 3.5% from the year-ago quarter.

The Zacks Consensus Estimate for average selling price per ton stands at $1,023, reflecting a 3.3% decline from the second quarter. AK Steel, in July, said that it expects average selling price in the third quarter to be modestly lower than the second quarter assuming a change in the mix of shipments related to an anticipated reduction in automotive shipments and decline in raw material surcharges. The company also expects higher shipments of the carbon distributing and converting market to be offset by lower automotive shipments.

The Zacks Consensus Estimate for third-quarter shipments is pegged at 1,463,000 tons, representing a 0.2% decline from the prior quarter.

AK Steel’s sustained initiatives to manage costs should support its bottom line in the to-be-reported quarter. AK Steel is looking for cost-saving opportunities through a number of means including process improvement, headcount cuts, reduction in process time and procurement activities. However, AK Steel faces weakness in electrical steel pricing in the overseas markets and remains exposed to margin pressure associated with elevated input costs.

AK Steel Holding Corporation Price and EPS Surprise

AK Steel Holding Corporation Price and EPS Surprise

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