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AK Steel Beats, Red Ink Worsens

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Steel maker AK Steel Holding Corporation (AKS - Free Report) slipped into a wider loss in fourth-quarter 2012, bogged down by sizable pension and tax charges and weak pricing.

The Ohio-based company posted a net loss of $230.4 million (or $1.89 a share) in the quarter compared with a loss of $193.9 million (or $1.76 a share) a year ago. The company recorded a pension charge of $157.3 million and a non-cash income tax charge of $96.4 million in the reported quarter. Excluding these items, AK Steel’s loss was 30 cents a share in the fourth quarter, which beat the Zacks Consensus Estimate of a loss of 35 cents.

For full-year 2012, net loss increased about six-and-a-half-fold year over year to $1,027.3 million or $9.06 per share, hammered by hefty non-cash tax charges. Barring pension and tax charges, loss was $64.4 million or 57 cents per share, lower than the Zacks Consensus Estimate of a loss of 60 cents.  


Revenues fell 6% year over year to $1,423.1 million in the reported quarter on lower pricing, but beat the Zacks Consensus Estimate of $1,416 million. Average selling price dropped 6% year over year to $1,011 per ton on account of lower spot market prices for carbon steel products and a decline in raw material surcharges. Shipments fell marginally year over year to 1,406,100 tons.

AK Steel and other players in the steel space including Nucor Corporation (NUE - Free Report) , U.S. Steel Corp. (X - Free Report) and Steel Dynamics Inc. (STLD - Free Report) are contending with weak steel demand, oversupply in the industry and pricing pressure. AK Steel said that weak economic conditions affected demand and steel pricing in the fourth quarter.

For the full year, revenues clipped 8% year over year to $5,933.7 million, yet squeaked past the Zacks Consensus Estimate of $5,924 million. Shipments fell 5% to 5,431,300 tons while average selling price dipped 3% to $1,092 per ton.
Cost and Margins

Consolidated operating costs fell nearly 12% year over year to $1,600 million. Operating loss declined 41% year over year to $176.9 million as lower revenues were more than offset by a decline in operating costs.

Financial Position

AK Steel ended 2012 with cash and cash equivalents of $227 million, a more than five-fold year over year increase. Long-term debt more than doubled year over year to $1,411.9 million.


AK Steel plans to release a detailed guidance for first-quarter 2013 in March. The company, however, said that it expects capital spending of roughly $60 million in 2013. It also plans to allocate around $90 million for its strategic investments in iron ore and coal.

AK Steel witnessed strength in the automotive market in 2012 and increased its business by around 20%. The company expects to continue to gain market share in 2013.

While AK Steel is expected to benefit from strong momentum in the automotive market, it is hamstrung by weak steel pricing environment. Moreover, it is exposed to macroeconomic uncertainties, stemming from the recessionary conditions in Europe and sluggish growth in Asia.

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

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