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AK Steel’s 4Q16 Earnings: What’s the Word on Wall Street?

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Jan. 19 2017, Updated 12:37 p.m. ET

AK Steel’s 4Q16 earnings

Previously, we looked at analysts’ estimates for AK Steel’s 4Q16 revenue. Along with revenue, it’s also important to keep track of profitability metrics. There are several metrics you can use to measure an enterprise’s profitability, such as net profit. For steel companies (XME) such as AK Steel (AKS) and Nucor (NUE), the EBITDA (earnings before interest, tax, depreciation, and amortization) metric is generally used.

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According to data compiled by Thomson Reuters, analysts expect AK Steel (AKS) to post adjusted EBITDA of $139 million in 4Q16 and $175 million in 1Q17. In contrast, AK Steel posted EBITDA of $168 billion in 4Q15 and $156 billion in 3Q16. Analysts expect AK Steel’s 4Q16 EBITDA to fall on a year-over-year and quarter-over-quarter basis.

Key drivers

Higher raw material costs could hurt AK Steel’s 4Q16 earnings. Unlike ArcelorMittal (MT) and U.S. Steel Corporation (X), AK Steel does not have integrated operations. The company relies primarily on third parties for its raw material needs. AK Steel sources iron ore from third parties based on the Vale (VALE) model, which has a four-month lag on spot iron ore prices. Iron ore prices have been strong and are currently hovering around $84 per metric ton.

Furthermore, coal prices rose steeply last year. Although higher spot coal prices may not have much of an impact on AK Steel’s 4Q16 profitability—US steel companies typically buy coal under contract pricing—coal prices could impact the company’s profitability in 2017. We’ll discuss this more in the next article.

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