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Steel maker AK Steel Holding Corporation (AKS - Analyst Report) posted a narrower loss in first-quarter 2013, helped by lower raw material costs. The Ohio-based company posted a net loss of $9.9 million (or 7 cents a share) in the quarter compared with a loss of $11.8 million (or 11 cents a share) a year-ago. The loss per share is narrower than the Zacks Consensus Estimate of a loss of 12 cents.

AK Steel saw a decline in raw material costs, mainly for iron ore, coal, carbon scrap and coke, in the reported quarter. It had a lower LIFO credit of $6 million in the quarter compared with a LIFO credit of $12.4 million a year ago.

Revenue, Pricing and Shipments

Revenues fell 9.2% year over year to $1,369.8 million in the reported quarter due to lower shipments to carbon spot market and missed the Zacks Consensus Estimate of $1,403 million.

Average selling price dropped 7% year over year to $1,062 per ton on account of lower spot market prices for carbon steel products, brought about by a decline in raw material surcharges and lower selling prices for electrical steel products globally. Shipments fell 2.7% year over year to 1,289,200 tons due to lower shipments to the carbon spot market.

Cost and Margins

Consolidated operating costs fell nearly 11.2% year over year to $1,336.6 million. Operating profit jumped almost seven-fold to $33.2 million.

Financial Position

AK steel ended the first quarter with strong liquidity. Cash and cash equivalents stood at $191.8 million as of Mar 31, 2013, compared with $42.3 million as of Mar 31, 2012. The company had no borrowings under its $1.1 billion credit facility during the first quarter.


AK Steel plans to release a detailed guidance for the second quarter in Jun 2013. The company has a planned maintenance outage at the Middletown Works blast furnace in the second quarter.

As a result, AK Steel expects to incur maintenance outage costs of approximately $21 million in the second quarter compared with $1 million in the first quarter of 2013, reflecting an increase to its cost. AK Steel anticipates that these enhanced maintenance costs in the second quarter would be mostly offset as a result of lower cost in other areas, primarily raw materials.

AK Steel is expected to benefit from the strength in the automotive market and higher shipment of carbon steel products to automakers. The company is also investing to internally procure about half of its iron ore and coal requirements. However, we are concerned about its high cost structure, the challenging operating backdrop in overseas markets, softness in the construction market and the weak steel pricing environment.  

AK Steel currently holds a short-term Zacks Rank #3 (Hold).

Other companies in the steel industry worth considering are Gibraltar Industries Inc. (ROCK - Analyst Report), Shiloh Industries Inc. and Companhia Siderurgica Nacional (SID - Analyst Report). While Gibraltar and Shiloh hold a Zacks Rank #1 (Strong Buy), Companhia holds a Zacks Rank#2 (Buy).

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