AK Steel Holding Corporation
) had posted a loss for the second consecutive time in the first
quarter of 2012 as lower shipments eclipsed the positive impact of
improved prices. However, the company said that it expected
shipments to rebound in the second quarter and get back into
profitable territory. The probability of a profitable quarter was
reaffirmed by AK Steel when it announced its guidance for the
The company expects to clock 1,350,000 tons in shipments in the
second quarter, slightly ahead of the 1,325,900 tons it shipped in
the first quarter. However, as prices are expected to remain
consistent with the first quarter, AK Steel's margins would not
have the support of better pricing like last time. But better
operating rates and lower raw material costs are expected to earn
the company 4-6 cents per share in the second quarter.
Beyond the Headlines
Even though the second quarter would mark AK Steel's return to
profitability after two successive quarters of losses, the
projected earnings are below last year's 32 cents per share and the
Zacks Consensus Estimate of 11 cents.
This particular statistic did not go down well with investors,
as the stock lost around 3.4% of its value right after the guidance
was announced. However, the expected profit also includes the
impact of a valuation allowance for its deferred tax assets, the
exact measure of which was not quantified by AK Steel.
AK Steel pointed that macroeconomic uncertainty and
deteriorating spot market prices are the key factors which might
hinder its performance going forward. As a result, the company was
unable to give out a clear guidance as far as its performance is
concerned through the rest of the year.
The company's prospects face greater challenges from increasing
imports in the domestic markets along with oversupply in the
industry due to ramp up of operations by other steelmakers and
Chinese players. These factors seem potent enough to constrict AK
Steel's margins in the long-term.
The company also provided a lowdown on the progress of its
strategic investments. AK Steel's Magnetation LLC joint venture is
expected to produce iron ore pellets before 2015. Similarly, the
company believes that it will produce coal through its wholly owned
subsidiary AK Coal Resources Inc., before the estimated
We currently have a long-term Neutral recommendation on AK
Steel. The company, which competes with
U.S. Steel Corp.
Steel Dynamics Inc.
), holds a short-term Zacks #3 Rank (Hold).
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