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Why X and AKS Had Opposite Response to Q1 Earnings Beat

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May. 6 2019, Published 11:05 a.m. ET

Q1 earnings

Last week, both U.S. Steel (X) and AK Steel (AKS) released their first-quarter earnings. While both these companies posted better-than-expected earnings, they followed different trajectories after their earnings release. While U.S. Steel rallied more than 17%, AK Steel saw a downwards price action after its earnings release. To understand the anomaly, let’s dig deeper into their financial performance.

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Revenues

Along with better-than-expected earnings, U.S. Steel also managed to beat revenue estimates in the first quarter. The company reported revenues of $3.5 billion in the first quarter. Analysts polled by Thomson Reuters expected the company to post revenues of $3.3 billion. On the other hand, AK Steel missed consensus revenue estimates. Also, we need to understand some of the moving parts. While AK Steel’s Q1 adjusted EBITDA of $161 million exceeded estimates of $132 million, it 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.

Guidance

In U.S. Steel’s case, its earnings were better than its guidance. Higher shipments and better-than-expected average selling prices helped it post higher earnings despite headwinds in Europe where the company is battling margin compression. AK Steel lowered its 2019 guidance during its first-quarter earnings release. U.S. Steel, which recently shifted to quarterly guidance, said that it expects its second-quarter EBITDA to be similar to the first quarter. While the company’s US flat-rolled operations are expected to post higher sequential earnings, weakness in Europe is expected to drag down its second-quarter performance.

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