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Why Is AK Steel (AKS) Down 3.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for AK Steel (AKS - Free Report) . Shares have lost about 3.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AK Steel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AK Steel’s Earnings Miss, Revenues Beat Estimates in Q2

AK Steel reported net income of $56.6 million or 18 cents per share in the second quarter of 2018, down roughly 27% from net income of $77.2 million or 24 cents recorded in the prior-year quarter.

Adjusted earnings of 22 cents per share missed the Zacks Consensus Estimate of 23 cents.
 
Total operating costs in the quarter rose around 14.3% year over year to roughly $1,647.1 million.
 
Net sales of $1,746.6 million in the second quarter rose around 12% year over year, topping the Zacks Consensus Estimate of $1,737 million.

Pricing and Shipments

Flat-rolled steel shipments in the second quarter were up around 0.4% year over year to 1,439,800 tons. Average selling price per ton for flat-rolled steel rose 6% to $1,101.

Financials
 
AK Steel exited second-quarter 2018 with cash and cash equivalents of $46 million compared with $136.3 million in prior-year quarter. The company had $908.5 million available under its revolving credit facility at the end of the quarter under review.
 
The company’s long-term debt rose roughly 21% year over year to $2,036.6 million.

Cash flow from operating activities was $187.4 million in the first half compared with $203.2 million a year ago.

Guidance

The company expects market conditions to remain strong in the third quarter. For the quarter, AK Steel expects flat-rolled shipments to be 5% higher from the second quarter. It anticipates average selling price per flat-rolled ton to be $1,105 in the third quarter. The company also anticipates an improvement in pricing and shipment to be, in part, offset by the outage at one of its temper mills.  As a result, it expects margins to improve around 50 basis points from the second quarter of 2018. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, AK Steel has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AK Steel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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