Negative free cash flow
In this article, we’ll do a comparative analysis of steel companies’ 1Q18 free cash flows. You can define free cash flow as operating cash flow minus capital expenditure (or capex). It’s a measure of a business’s cash flow generation capacity.
Steel Dynamics reported free cash flow of $127 million in 1Q18 compared to $155 million in 4Q17 and $198 million in 1Q17. AK Steel (AKS) also generated positive free cash flow of $28 million in 1Q18. However, it had posted free cash flow of -$19 million in the previous quarter. All other steel companies we’re covering in this series reported negative free cash flows in 1Q18.
Nucor (NUE) reported free cash flow of -$44 million in 1Q18. ArcelorMittal (MT) also reported negative free cash flow in the quarter. The company reported free cash flow of -$592 million in 1Q18 compared to $1.8 billion in 4Q17 and -$879 million in 1Q17.
U.S. Steel Corporation (X) reported free cash flow of -$307 million in 1Q18. The company posted free cash flow of $47 million in 4Q17 and -$182 million in 1Q17. Should its negative free cash flow concern investors? Let’s discuss this in perspective.
In U.S. Steel’s case, its earnings are typically subdued in the first quarter due to seasonality at its iron ore operations (CLF). Like other steel companies, U.S. Steel typically sees a working capital buildup in the first quarter that negatively impacts its free cash flow.
Also, the company is investing substantially in its facilities under an asset revitalization plan that’s working toward higher capex. Its negative free cash flow in 1Q18 shouldn’t bother investors.