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Why Wall Street Expects AK Steel’s Earnings to Fall in Q1

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AK Steel’s earnings

AK Steel (AKS) is expected to post a 3.5% sequential rise in its first-quarter revenues. However, its earnings are expected to fall in the quarter. Analysts polled by Thomson Reuters expect AK Steel to post adjusted EPS of $0.13 in the first quarter, compared to adjusted EPS of $0.16 in the fourth quarter. Nucor (NUE) and Steel Dynamics (STLD) also posted sequentially lower earnings in Q1. U.S. Steel’s (X) earnings are likewise expected to fall in the first quarter.

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Guidance

AK Steel is expected to generate adjusted EBITDA of $132 million in the first quarter. It posted adjusted EBITDA of $136 million in the fourth quarter and $119 million in the first quarter of 2018. Previously, AK Steel provided qualitative quarterly guidance. However, starting this year, it would provide only annual guidance. During their fourth-quarter earnings release, AK Steel said it expects to post adjusted EBITDA of $515 million–$535 million in 2019, compared to $563 million in 2018. Even at the upper range of guidance, AK Steel’s EBITDA is expected to fall year-over-year in 2019.

Iron ore prices have spiked

Since AK Steel gave its 2019 guidance, we’ve seen a spike in seaborne iron ore prices. While higher iron ore prices are beneficial for iron ore miners like Cleveland-Cliffs (CLF), they could dent AK Steel’s earnings as it buys its iron ore. Although the company hedges its iron ore requirements, higher iron ore prices could still affect its 2019 earnings.

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