We are retaining our Neutral recommendation on
AK Steel Holding Corporation
). The company turned to a loss in third-quarter 2012, hit by
lower steel pricing and hefty tax expense.
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Adjusted loss per share of 25 cents a share beat the Zacks
Consensus Estimate of a loss of 38 cents. Revenues fell nearly 8%
year over year to $1,463.5 million on lower pricing and shipments
and missed the Zacks Consensus Estimate. The company said that it
expects to post bigger loss in the fourth quarter.
AK Steel is expected to benefit from the strength in the
automotive market and higher shipment of steel products to
automakers. The company envisions shipments of carbon steel
products to automakers to surge 20% to 25% year over year in
The company is also investing to procure about half of its iron
ore and coal requirements internally. It is making good progress
with its coal mine plan and expects to begin mining activities in
the first half of 2013. It is also making significant progress
with its iron ore pellet project at Magnetation. Both these
strategic investments are expected to improve the company's cost
structure and strengthen its position in the years ahead.
However, AK Steel and other major players in the steel space such
U.S. Steel Corp.
) are contending with weak steel demand, oversupply in the
industry and pricing pressure.
AK Steel is also hamstrung by weak construction and housing
sectors. Moreover, it is exposed to macroeconomic uncertainties,
stemming from the recessionary conditions in Europe and sluggish
growth in Asia. AK Steel also has significant pension fund
AK Steel, in November 2012, announced that it anticipates wider
loss in fourth-quarter 2012 as a sizable non-cash tax expense
coupled with lower steel pricing is expected to dent its bottom
line in the quarter. Moreover, the company expects its average
per-ton selling price to slip roughly 5% in the fourth quarter
from the third quarter level, partly triggered by lower spot
market prices for carbon steel products as a result of weaker
global economic conditions and lower raw material surcharges.
AK Steel also noted that lower raw material costs will not fully
offset the decline in prices. Nevertheless, the company expects
shipments to increase sequentially in the fourth quarter.
Our recommendation on the stock is in agreement with a short-term
Zacks #3 Rank (Hold).