Worth Watching Stock: AK Steel Holding Corporation (NYSE: AKS)

On Monday, Shares of AK Steel Holding Corporation (NYSE: AKS) gained 0.10% to $5.26. The stock opened its trade at $5.26 and after floating in a price range of $5.18 to $5.34; the stock grabbed the investor’s attention and traded 8,762,610 shares as compared to its average daily volume of 20.97M shares. The stock’s institutional ownership stands at 68.60%.

AK Steel (AKS) recently stated its financial results for the fourth quarter and full-year 2017.

Fourth Quarter

AK Steel stated a net loss of $107.90M, or $0.34 per diluted share of common stock, for the fourth quarter of 2017, contrast to a net loss of $62.40M, or $0.22 per diluted share, for the fourth quarter of 2016.  Excluding net charges described below, the company stated an adjusted net loss of $19.50M, or $0.06 per diluted share, for the fourth quarter of 2017, contrast to adjusted net income of $75.20M, or $0.25 per diluted share, for the fourth quarter a year ago.  Included in the stated results for the most recent fourth quarter were non-cash charges totaling $88.40M, or $0.28 per diluted share, for asset impairments and a reduction in the value of deferred tax assets related to the effect of recent U.S. tax legislation, as well as a credit for the benefits of a transportation agreement reached in the fourth quarter of 2017, as further discussed below.  In the year-ago fourth quarter the company had charges of $137.60M, or $0.47 per diluted share.  Also included in the fourth quarter of 2017 was $46.70M of planned maintenance outage expense.  This contrast to $22.10M in the fourth quarter a year ago.

Excluding the asset impairment charge and credit for the benefits of a transportation agreement, adjusted EBITDA was $65.40M, or 4.4% of net sales, for the fourth quarter of 2017.  This compares to adjusted EBITDA of $164.90M, or 11.6% of net sales, for the fourth quarter a year ago.

Net sales for the fourth quarter of 2017 increased 5% to $1.500B, from net sales of $1.420B for the year-ago fourth quarter, mainly driven by incremental sales from the acquisition of Precision Partners, which was accomplished on August 4, 2017.  Flat-rolled steel shipments declined to 1,337,100 tons for the fourth quarter of 2017 from 1,385,500 tons in the prior-year fourth quarter.  The decline in flat-rolled shipments was mostly driven by lower automotive demand as automakers managed their inventories.  The average selling price per flat-rolled steel ton for the fourth quarter of 2017 increased 4% from the fourth quarter of 2016 to $1,024 per ton, mainly as a result of higher spot market pricing and higher automotive selling prices.

The company recorded a LIFO charge of $5.10M for the fourth quarter of 2017, as contrast to a LIFO credit of $7.50M for the fourth quarter of 2016.  Financial results for the fourth quarter of 2017 also included unrealized derivative gains on iron ore of $19.70M, as contrast to unrealized derivative gains on iron ore of $33.80M in the year-ago quarter (see “Iron Ore Derivatives” below for further negotiation).  Included in the 2016 results were net pension and other postretirement benefit (“OPEB”) corridor charges and pension settlement charges of $68.10M, or $0.23 per diluted share.

The company ended the fourth quarter of 2017 with total liquidity of $844.50M, consisting of cash and cash equivalents and $807.30M of availability under the company’s revolving credit facility.

Full-Year 2017

The company recorded full-year 2017 net income of $10.00M, or $0.03 per diluted share of common stock, contrast to a net loss of $7.80M, or $0.03 per diluted share, for 2016.  The company stated 2017 adjusted net income of $98.40M, or $0.31 per diluted share, as contrast to the company’s 2016 adjusted net income of $129.80M, or $0.56 per diluted share.  In Addition To, the company stated adjusted EBITDA of $419.50M, or 6.9% of net sales for 2017, contrast to adjusted EBITDA of $501.90M, or 8.5% of net sales for 2016, because of higher raw material and outage expenses, partially offset by higher selling prices.  The unadjusted full-year results reflected the net charges recorded in the fourth quarter totaling $88.40M, or $0.28 per diluted share, in 2017, and $137.60M, or $0.59 per diluted share, in 2016.

The 2017 results included a LIFO charge of $113.40M, contrast to a LIFO credit of $23.30M for 2016, mainly because of increases in raw material costs in 2017 contrast to 2016.  In addition, the company recorded outage costs of $84.90M and $62.10M for the full years of 2017 and 2016.  Unrealized derivative gains on iron ore in 2017 were $31.60M, as contrast to unrealized gains of $45.60M in 2016.  Also included in 2017 results were $21.50M of expenses related to debt refinancing, whereas similar expenses were $9.40M in 2016.  Full-year 2017 results reflect $6.20M of costs related to the Precision Partners acquisition.

Net sales for 2017 were $6.080B, a boost of 3% from 2016 net sales of $5.880B. Flat-rolled steel shipments in 2017 declined 6% to 5,596,200 tons from 5,936,400 tons in 2016.  The decline in flat-rolled shipments was mainly the result of a decline in shipments to the automotive market, which were 10% lower in 2017 than 2016.  The average selling price per flat-rolled steel ton for 2017 increased 7% from 2016 to $1,022 per ton driven by higher contract and spot prices.

Asset Impairment

During the quarter ended December 31, 2017, the company recognized a non-cash asset impairment charge of $75.60M, or $0.24 per diluted share, mainly related to the long-lived assets associated with the temporarily-idled Ashland Works blast furnace and steelmaking operations (“Ashland Works Hot End”).  The Ashland Works Hot End remains on temporary idle and no determination has been made at this time regarding the long-term status of the operations.  However, the company continues to engage in regular reviews of the potential viability of the Ashland Works Hot End, counting an assessment of the most noteworthy risks and benefits of a permanent idling of those operations.  The company now believes it is less likely that the Ashland Works Hot End will restart in the near term based on its assessment of the near-term supply and demand characteristics of the markets that it serves.

Other Obligations

The company’s fourth quarter 2016 results included a charge of $69.50M, or $0.24 per diluted share, for the termination of an iron ore pellet supply agreement and other related charges for transportation obligations related to the supply agreement.  In the fourth quarter of 2017, the company reached a contract that reduced its transportation obligations and provides a timeframe to begin using the rail cars that were idled after the termination of the pellet supply agreement.  As a result, a credit of $19.30M, or $0.06 per diluted share, was recorded in the fourth quarter of 2017.

AKS has a market value of $1.72B while its EPS was booked as $0.11 in the last 12 months. The stock has 326.67M shares outstanding. In the profitability analysis, the company has gross profit margin of 11.90% while net profit margin was 0.10%. Beta value of the company was 2.84; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.70.

Leon Constant

Reporter

I am Leon Constant and I focus on breaking news stories and ensuring we (“The Stock Gem”) offer timely reporting on some of the most recent stories released through market wires about “Basic Material Stocks”. I have formerly spent over 3 years as a trader in U.S. Stock Market and is now semi-stepped down. I work on a full time basis for thestockgem.com specializing in quicker moving active shares with a short term view on investment opportunities and trends.

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