Falling Revenues: Can AK Steel Buck the Trend in Q1?



Falling revenues

AK Steel (AKS) is expected to release its first-quarter earnings on April 29. Analysts polled by Thomson Reuters expect the company to post revenues of $1.74 billion in the quarter. It posted revenues of $1.68 billion in the fourth quarter and $1.66 billion in the first quarter of 2018.

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While analysts expect AK Steel’s revenues to rise 3.5% sequentially, other steel companies that have reported so far saw a sequential fall in their first-quarter revenues. Nucor (NUE) and Steel Dynamics (STLD) respectively posted sequential falls of 3.2% and 2.7% in their first-quarter revenues. U.S. Steel (X) is also expected to post a sequential fall in its first-quarter revenues. So, can AK Steel buck the trend and post higher revenues in the quarter? Let’s find out.

Key drivers

Steel companies’ revenues are a function of steel shipments and average selling prices (or ASPs). Both Nucor and Steel Dynamics posted sequential falls in their first-quarter ASPs. These decreases weren’t surprising as spot steel prices fell sharply in the fourth quarter and hit steel companies’ first-quarter spot shipments.

However, in AK Steel’s case, the company sells most of its steel on a contract basis. The pricing in most of these contracts gets settled at the beginning of the year or the fourth quarter of the preceding year. Last year, AK Steel’s ASP progression lagged behind its peers as its contract pricing was settled prior to a spike in spot steel prices. AK Steel expects its 2019 ASP to be similar to last year despite lower spot steel prices. However, the company is expected to report fewer spot shipments in the first quarter due to a planned outage. In my view, AK Steel’s revenue estimates look somewhat on the higher side.


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