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POSCO (PKX) Q1 Earnings Up Y/Y on Sales Growth, Lower Costs

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Korean steel producer POSCO (PKX - Free Report) reported improved year-over-year results for first-quarter 2017. Net income for the quarter surged 189.1% to KRW 977 billion ($0.85 billion) from the year-ago tally of KRW 338 billion ($0.29 billion). The improvement was primarily driven by revenue growth and cost reduction initiatives taken by the company.
 
Net earnings per share were KRW 2,799.4 or $2.43 per American Depository Receipt (“ADR”).

Revenues

In the quarter, POSCO generated revenues of KRW 15,077 billion ($13.1 billion), increasing 21% year over year. The top-line growth can be attributed to higher sales price driven by rise in raw material costs.

Crude steel production in the quarter totaled 9.1 million tons, below 9.6 million tons recorded in the previous quarter. Finished product sales declined 3.2% sequentially. The company noted that the fall in production and sales volume was primarily due to revamping of Pohang Works’ #3 blast furnace.

Margins

POSCO’s margin profile improved in the quarter as its sales expansion was complemented by 17.4% reduction in cost of sales. As a percentage of total revenue, cost of sales was 85% compared with 87.6% in the year-ago quarter. Gross profit margin expanded 260 basis points (bps) to 15%. Selling and administrative expenses grew 1.2% to KRW 893 billion ($0.8 billion).

Operating profit more than doubled year over year to KRW 1,365 billion ($1.18 billion) while operating margin was up 380 bps to 9.1%.

Balance Sheet

Exiting the first quarter, POSCO had cash balance of KRW 7,821 billion ($7 billion), up from KRW 7,623 billion ($6.3 billion) in the previous quarter. Non-current liabilities decreased 5.5% to KRW 14,187 billion ($12.7 billion).

POSCO Price and Consensus

 

POSCO Price and Consensus | POSCO Quote

Outlook

For 2017, POSCO anticipates consolidated revenues to be approximately KRW 54.8 trillion. Finished product sales are estimated to be roughly 34.6 million tons while crude steel production is projected to be nearly 37 million tons. Consolidated investments are likely to be KRW 3.5 trillion.

Global steel demand worldwide is anticipated to grow 1% year over year on the back of demand expansion in China, India, Southeast Asia and other emerging nations.    
 
Zacks Rank & Key Picks

With a market capitalization of $18.2 billion, POSCO carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include ArcelorMittal (MT - Free Report) , Nucor Corporation (NUE - Free Report) and Ternium S.A. (TX - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcelorMittal’s earnings estimates for 2017 and 2018 improved over the past 60 days. It reported an average positive earnings surprise of 143.8% for the last four quarters.

Nucor Corporation’s financial performance was impressive in the last quarter, with a positive 47.06% earnings surprise. Also, its earnings estimates for 2017 and 2018 improved over the past 60 days.

Ternium S.A. posted an average positive earnings surprise of 16.43% over the last four quarters.  Its earnings estimates for 2017 and 2018 were revised upward in the last 60 days.

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