Korean steel maker, POSCO ( PKX - Analyst Report ) reported its fourth quarter and 2012 financial results on Jan 29, 2013. Results were weak in 2012 as net income fell 35.8% year over year to KRW 2,386 billion (US$2.2 billion) or KRW 27,347 per share (US6.30 per ADR).

Revenue

POSCO’s consolidated revenue in 2012 was KRW 63,604 billion (US$58.6 billion), down 7.7% year over year. Non-steel sectors performed well during the year, registering a revenue increase of 2.3%. These were more than offset by a 6.1% decline in steel sector revenue.

Crude steel production was at its highest level at 37.986 million tons and represented a 1.8% increase over 2011. Finished product sales were up 1.6%; export ratio of finished product sales was at 41.7% versus 38.6% in 2011. Demand for finished products was strong from the Automobile end-market while weaknesses were noticed in Home Appliances and Shipbuilding markets.

Margins

As a percentage of revenue, increase in consolidated cost of goods sold has been noticed over the years; from roughly 82.9% in 2010 to 86.8% in 2011 and 88.3% in 2012.

Selling and administrative expenses in 2012 soared 4.4% year over year to KRW 3,808 (US$3.5 billion). Operating margin for the year has gone down by 290 basis points to settle at 5.7%.

Balance Sheet

Exiting 2012, POSCO’s cash and cash equivalents balance stood at KRW8, 527 billion (US$8.0 billion), reflecting a year-over-year increase of 3.3%. Long-term liabilities declined 5.6% and reached KRW 17,061 billion (US$16.0 billion).

Outlook

For 2013, management expects consolidated revenue to be approximately KRW 66 trillion. Finished product sales are estimated to be roughly 34 million tons; crude steel production about 37 million tons while consolidated investments are likely to be approximately KRW 7 to 8 trillion.

Global steel demand is likely to grow by 3% year over year in 2013; being largely pushed by restocking activities in China and strong demand from U.S, India and Southeast Asian countries.

POSCO currently has a Zacks Rank #1 (Strong Buy). Other stocks to watch out for are Gibraltar Industries, Inc. ( ROCK - Analyst Report ) with a Zacks Rank #1 (Strong Buy) and ArcelorMittal South Africa ( AMSIY ) and Commercial Metals Company ( CMC - Snapshot Report ) , both with a Zacks Rank #2 (Buy).