AK Steel climbs to better-than-expected 4th-quarter profit, sees stronger pricing ahead

AK Steel shares rise on strong 4Q profit, outlook

WEST CHESTER, Ohio — AK Steel Holding Corp. said Monday that increased demand, particularly from automotive customers, drove a better-than-expected fourth-quarter profit and predicted that stronger pricing will help the company drive growth in 2010.

“AK Steel met the severe economic crisis of 2009 head-on and emerged as a stronger company,” said James L. Wainscott, the company’s president and CEO. He said production has returned to about 85 percent of capacity compared with only 45 percent in the 2009 second quarter. That has helped the company put more employees back to work and even hire some new ones.

The market for steel was heavily impacted by the recession as demand plummeted for cars and trucks, appliances and building construction. But AK Steel said shipments jumped 28 percent in the fourth quarter as the economy slowly began recovering and manufacturers and steel distributors bought more of the metal to replenish their stockpiles.

While that volume likely will only hold steady in the first quarter, AK Steel said pricing trends should become much stronger and will help counter flat growth. Average selling prices are expected to rise between 4 percent and 5 percent in the next few months.

AK Steel earned $39.8 million, or 36 cents per share, in the last three months of 2009. That compares with a year-ago loss of $430 million, or $3.87 per share, which included hefty pension-related charges.

Sales slipped 9 percent to $1.32 billion from $1.46 billion, as selling prices tumbled to an average of $964 per ton versus $1,359 a ton a year ago. However, AK Steel shipped 1.37 million tons of product during the quarter, about 300,000 tons more than in the same period of 2008.

The results easily topped the average estimates of analysts polled by Thomson Reuters, who had forecast profit of 20 cents per share on sales of $1.25 billion. AK Steel shares jumped $1.08, or 5.4 percent, to close at $21.27, after climbing as high as $21.94 earlier in the session.

The results bode well for Nucor Corp. and U.S. Steel, the nation’s largest steel producer, both of which report quarterly results early Tuesday.

For all of 2009, AK Steel reported a loss of $74.6 million, or 68 cents per share, versus a profit of $4 million, or 4 cents a share, in 2008. Sales fell to $4.08 billion from $7.64 billion a year ago. Wainscott said in a conference call with analysts that the company has no intention of repeating that loss and expects to be fully profitable in 2010.

Looking ahead, AK Steel cautioned that the first quarter will likely be the lowest shipment quarter of the year. Also, the company noted that much of what will be shipped was booked prior to recent price hikes, so there will be a “mismatch” between first-quarter sales prices and an expected big jump in raw material costs.

Because of this, AK Steel expects to pull down operating profit of just $35 a ton in the current quarter — about half of the $64 a ton it booked in the fourth quarter. However, AK Steel said it expects pricing will strengthen throughout the year as contracts expire and are renegotiated at higher prices.

It predicts annual sales volumes for 2010 should be about 40 percent higher than in 2009, with much better performance in its electrical steel division.

Merriman Curhan Ford analyst Dana Guido said AK Steel remains her top pick in the steel sector. She rates the stock “Buy” with a $27-$30 price target. KeyBanc Capital Markets analyst Mark L. Parr maintained a neutral stance on the stock, however, awaiting better visibility on how the company will fully offset rising raw material costs.