AK Steel (AKS) was trading higher in after-market trading yesterday after it posted better-than-expected earnings. Nucor (NUE) and Cleveland-Cliffs (CLF), other steel and iron ore companies, posted better-than-expected earnings, while Steel Dynamics’ (STLD) earnings fell short of analysts’ estimates.
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However, while AK Steel’s earnings shattered expectations, its revenues fell slightly short of expectations. In the fourth quarter, AK Steel also missed revenue estimates. The one common link that we see in AK Steel’s financial performance over the last few quarters has been a weak shipments profile. The company missed its shipment guidance in the third and fourth quarter.
In the first quarter, AK Steel reported flat rolled shipments of 1.38 million tons, a year-over-year fall of 3%. Shipments were similar to the sequential quarter. AK Steel’s shipments profile seems to be negatively impacted by two factors. First, the company’s key automotive end market is seeing lower activity. Secondly, Nucor is aggressively expanding its footprint in the sector and gaining market share.
While AK Steel’s adjusted EBITDA of $161 million exceeded estimates of $132 million, it’s worth looking at some of the moving parts. The company reported a mark to market gain of $21.8 million on its iron ore derivative contracts. It also recorded an $11.6 million gain on the sale of assets in the quarter. After accounting for these two components, AK Steel’s earnings beat looks much less impressive than the headline numbers.