Leading steelmaker AK Steel Holding Corporation (AKS) has slipped into a bigger loss in third-quarter 2012, hammered by weak steel pricing and a sizable tax expense. The Ohio-based company also logged lower sales in the quarter.
AK Steel posted a net loss of $60.9 million (or 55 cents a share) in the quarter compared with a loss of $3.5 million (or 3 cents a share) a year ago. The company recorded a non-cash charge of $33.1 million or 30 cents a share associated with income tax expenses in the reported quarter. Excluding the impact, AK Steel's loss was 25 cents a share in the third quarter, which beat the Zacks Consensus Estimate of a loss of 38 cents.
Revenues dipped 7.7% year over year to $1,463.5 million on lower pricing and shipments, narrowly missing the Zacks Consensus Estimate of $1,474 million. Average selling price dropped 7% year over year as well as sequentially to $1,073 per ton on account of lower spot market prices for carbon steel products and a decline in raw material surcharges. Shipments fell roughly 0.4% year over year to 1,363,500 tons.
AK Steel and other major players in the steel space such as Nucor Corporation (NUE) and U.S. Steel Corp. X) are contending with weak steel demand, oversupply in the industry and pricing pressure. AK Steel said that weak global economic conditions affected shipment volume and steel pricing in the third quarter.
Cost and Margins
Consolidated operating costs fell 6% year over year to $1,475.5 million. The company posted an operating loss of $12 million versus an operating profit of $11.4 million a year ago as lower revenues more than offset a decline in operating costs.
AK Steel ended the quarter with cash and cash equivalents of $47.1 million, down roughly 20% year over year. Long-term debt more than doubled year over year to $1,350 million.
Outlook and Recommendation
The company said that it expects to record a loss in the fourth quarter, which includes a non-cash tax expense. However, it has not divulged any specific guidance for the quarter. AK Steel further noted that it plans to provide more color on that later.
While AK Steel is expected to benefit from the strength in the automotive market, it is hamstrung by weak steel pricing environment and soft construction and housing sectors. 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 #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.