Are AK Steel’s Q1 Earnings Worth the Celebration?

AK Steel’s Q1 earnings

AK Steel (AKS) released its first-quarter earnings yesterday after markets closed. The company posted adjusted EPS of $0.23 in the quarter. The earnings shattered analysts’ estimates by a wide margin. AK Steel posted adjusted EPS of $0.16 in the fourth quarter and $0.09 in the first quarter of 2018.

Are AK Steel’s Q1 Earnings Worth the Celebration?

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While AK Steel posted sequentially higher EPS in the first quarter, Nucor (NUE) and Steel Dynamics (STLD) posted a sequential fall in their first-quarter earnings. U.S. Steel (X), which is scheduled to release its first-quarter earnings on May 2, is also expected to post sequentially lower earnings in the first quarter.

Are earnings worth celebrating?

AK Steel was trading higher in aftermarket trade yesterday as investors seemed to celebrate the earnings beat. However, AK Steel missed revenue estimates in the first quarter. The company posted revenues of $1.70 billion in the first quarter versus estimates of $1.74 billion. It posted revenues of $1.68 billion in the fourth quarter and $1.66 billion in the first quarter of 2018. In AK Steel’s pre-earnings analysis, we noted that the company’s revenue estimates seem to be on the higher side.

Guidance lowered

AK Steel also lowered its 2019 earnings guidance. The company now expects to post adjusted EBITDA of $505 million and $525 million this year. During its fourth-quarter earnings call, AK Steel gave EBITDA guidance of $515 million to $535 million for 2019. The guidance cut is mainly driven by the deterioration in spot steel prices. However, it’s worth noting that as compared to peers, AK Steel is much less exposed to volatility in spot steel prices, as 70% of its sales have fixed price contracts.