Back to top

Analyst Blog

Korean steel producer, POSCO’s (PKX - Analyst Report) second-quarter 2014 results marked an improvement over the year-ago as well as the preceding-quarter results. Net income more than doubled to KRW 487 billion (US$473.8 million) while shooting up 770% sequentially. Earnings per share came in at KRW 5,581.7 per share (or US$1.36 per ADR).

Revenues

POSCO’s consolidated revenues were KRW 16,704 billion (US$16.3 billion), up 7.1% year over year and 8.2% sequentially.

Roughly 9.3 million tons of crude steel were produced, reflecting an increase of 4.6% year over year. Sequentially, production inched down 0.5%. Finished product sales improved 1.5% year over year and 1.6% sequentially; and export ratio of finished product sales was 45%.

Margins

POSCO reported an 8.3% year-over-year increase in cost of sales, representing 89.1% of total revenue versus 88% in the year-ago quarter. Higher costs offset revenue growth in the quarter leading to a fall of 110 basis points (bps) in gross margin to 10.9%. Selling and administrative expenses climbed 1.9% to KRW 973 billion (US$0.95 billion).

Operating profit was KRW 839 billion (US$0.82 billion), down 7.1% year over year but up 14.8% sequentially. The improvement over the preceding quarter was driven by healthy performance in steel and trading businesses. Operating margin decreased 80 bps year over year, while improving 30 bps sequentially.

Balance Sheet

Exiting second-quarter 2014, POSCO had cash and financial goods balance of KRW 5,456 billion (US$5.4 billion), down 18.9% from KRW 6,725 billion (US$6.29 billion) recorded at the previous-quarter end. Non-current liabilities decreased 2.9% to KRW 18,221 billion (US$18 billion).

Outlook: For 2014, POSCO anticipates consolidated revenue to be approximately KRW 64.5 trillion versus the prior expectation of KRW 63.5 trillion. Finished product sales are estimated to be roughly 34.6 million tons versus 34.9 million tons expected previously. Crude steel production is projected to be nearly 37.5 million tons versus 37.9 million tons predicted earlier. Consolidated investments are likely to be KRW 6.1 trillion as against a previously anticipated range of KRW 5.7−KRW5.9 trillion.

Domestic steel demand in third-quarter 2014 is expected to be affected by lower demand from automobile, home appliance and shipping industries.

With a market capitalization of $24.9 billion, POSCO presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Ossen Innovation Co., Ltd. , Olympic Steel Inc. (ZEUS - Snapshot Report) and ThyssenKrupp AG (TYEKF). All these companies hold a Zacks Rank #2 (Buy).
 

Please login to Zacks.com or register to post a comment.