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Weak Steel Erodes Earnings at POSCO - Analyst Blog

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Korean steel producer, POSCO ( PKX ) reported disappointing financial results for 2013 on Jan 28. Net income in the year fell 43.2% year over year to KRW 1,355 billion (US$1,242.6 million). Earnings per share were KRW 15,530.09 per share (or US$3.56 per ADR).

Revenue

POSCO's consolidated revenue in 2013 was KRW 61,865 billion (US$56.7 billion), down 2.7% year over year. The decline can be attributed to weak steel sector performance.

In 2013, crude steel production was down 4.1% year over year to 36.416 million tons. Finished product sales were also down 3.2%; export ratio of finished product sales was at 42.8%.

Steel sales for the automobile and shipbuilding industries increased 8.3% and 7.9% respectively. Steel demand from the home appliances industries was down 0.5%.

Margins

As a percentage of revenue, POSCO reported a year-over-year increase of 60 basis points in consolidated cost of goods sold. Gross margin came in at 11.1% versus 11.7% in 2012. Selling and administrative expenses in 2013 increased 1.5% year over year to KRW 3,864 billion (US$3.54 billion).

Operating profits in the year were severely impacted by earnings reduction in the steel sector. Operating margin was 4.8% in 2013, down 90 basis points year over year.

Balance Sheet

Exiting 2013, cash and financial goods of POSCO came in at KRW 7,179 billion (US$6.83 billion), up 9.9% year over year. Non-current liabilities increased 7.8% to KRW 18,392 billion (US$17.5 billion).

Outlook

For 2014, management of POSCO expects consolidated revenue to be approximately KRW 65.3 trillion. Finished product sales are estimated to be roughly 34.9 million tons; crude steel production is estimated at roughly 37.7 million tons while consolidated investments are likely to be approximately KRW 6.5 trillion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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