AK Steel’s profits rise
Previously we have learned how AK Steel’s (AKS) average steel selling prices have dipped by ~10%. On the other hand, raw material costs also came down in 4Q14. These two factors have opposite impacts on the company’s profitability. While lower steel prices have pulled down AK Steel’s profitability, lower raw material costs have offset it to some extent. Let’s explore how these factors impacted AK Steel’s 4Q14 profitability.
Currently, AK Steel is 3.87% of the SPDR S&P Metals and Mining ETF (XME). Investors can also access the steel industry with Gerdau S.A. (GGB) and Tenaris S.A. (TS). Tenaris is a major supplier of steel products to the energy industry.
The above chart shows the earnings before interest, taxes, depreciation, and amortization (or EBITDA) of AK Steel. As you can see, its EBITDA increased during 4Q13. The EBITDA is also up when compared to 3Q14. However, the EBITDA margin is down as compared to previous quarters.
The negative impact of lower steel prices has a greater impact than the cost savings from lower raw material prices.
The increase in AK Steel’s profits is largely due to higher shipments from its Dearborn Works facility. However, Dearborn also negatively impacted AK Steel’s profit margins. AK Steel expects synergies from Dearborn to increase its profits in 2015. We will discuss this in detail later in this series.
While profit margins decreased in 4Q14, AK Steel’s cash flows improved significantly. US Steel (X) also reported higher cash flows in 2014. Improving cash flows is one of the focus areas under US Steel’s Carnegie Way program. We will discuss more about AK Steel’s 2014 cash flows in our next article.