According to Reuters, ratings agency Standard & Poor's
(S&P) has cut
AK Steel Holding Corporation
's (
AKS
) rating to "B+" from "BB-". The rating downgrade was driven by the
company's weak performance and also the difficult conditions in the
industry. The rating outlook was kept as stable by the agency.
The company has been struggling due to weakness in construction and
housing sectors. It posted a loss of 11 cents in its most recent
quarter, down from a profit of 8 cents in the year ago period. AK
Steel's shipments declined almost 7% year over year and dragged
revenues down by 4.6%.
Things went from bad to worse for AK Steel after it provided a
downcast outlook for the second quarter. Although the company
projects a marginal jump in shipments and expects to post a profit,
it would still lag behind last year's profit of 32 cents by a wide
margin.
AK Steel pointed that uncertain economic conditions and
deteriorating spot market prices are the prime factors affecting
its performance. In addition, it faces greater challenges from
increasing imports in the domestic markets, along with industry
oversupply due to ramp up of operations by its peers.
S&P also reiterated the above mentioned concerns in its rating
action. In addition, the agency believes that AK Steel's high fixed
costs along with weakening spot prices are areas of concern. Also,
sluggish growth in construction and housing sectors might further
pressurize earnings. Although AK Steel has recently made
acquisitions with an eye on controlling costs, they might not be
enough to solve its problems regarding raw material requirements in
the near future.
However, the agency recognizes the company's strong liquidity
position and impressive standing in various steel products. AK
Steel's liquidity position is strong enough for it to meet its debt
obligations and it also does not have any significant debt
maturities to meet for the next eight years.
S&P might raise AK Steel's ratings if it can improve its
operational strengths and is aided by better pricing and faster
growth of the U.S. economy. However, if the industry moves in the
opposite direction, and AK Steel's earnings before interest, taxes,
depreciation and amortization (EBITDA) remain below $300 million,
debt to EBITDA hovers above 6 times, and total liquidity drops
below $300 million, S&P might downgrade ratings further.
We currently have a long-term Underperform recommendation on AK
Steel. The company, which competes with
Nucor Corporation
(
NUE
),
U.S. Steel Corp.
(
X
) and
Steel Dynamics Inc.
(
STLD
), holds a short-term Zacks #5 Rank (Strong Sell).
AK STEEL HLDG (AKS): Free Stock Analysis Report
NUCOR CORP (NUE): Free Stock Analysis Report
STEEL DYNAMICS (STLD): Free Stock Analysis
Report
UTD STATES STL (X): Free Stock Analysis Report
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