There are several metrics that you can use to measure a company’s profitability. But for companies in the commodities space (COMT), EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used. According to consensus estimates compiled by Bloomberg, analysts expect AK Steel (AKS) to post adjusted EBITDA of $108 million in 2Q16. The company posted EBITDA of $81 million in 1Q16 and $48 million in 2Q15.
That said, analysts expect AK Steel to post an adjusted loss per share of $0.03 in 2Q16 before returning a net profit in 3Q16. It’s important to note that while Nucor (NUE) and Steel Dynamics (STLD) have consistently posted net profits since the aftermath of the 2009 financial crisis, AK Steel and U.S. Steel (X) have still been struggling to post net profits.
Key drivers of 2Q16 earnings
AK Steel sources iron ore from third parties based on the Vale model, which has a four-month lag to spot iron ore prices. Thanks to falling iron ore prices, AK Steel has reported a LIFO (last in, first out) credit for the past several quarters.
However, iron ore prices spiked in 1Q16. AK Steel did not provide a watertight figure, but it still expects a LIFO charge in 2Q16. According to AKS, the charge should be less than $10 million. Also, AK Steel’s average steel selling prices might not rise in 2Q16 like other steel companies due to its lower spot exposure. For this reason, AK Steel’s 2Q16 profits might not see a big sequential spike like some of its peer companies.
In the next part of the series, we’ll explore what markets would like to hear from AK Steel’s 2Q16 earnings call.