AK Steel Stock Fell after Q3 Earnings Miss

• AK Steel stock was trading sharply lower in after-market trade on Wednesday. The company released its third-quarter earnings and missed on the top line and bottom line.
• Despite President Trump’s Section tariffs, the company was barely profitable in the third quarter.

AK Steel (AKS) stock was trading deep in the red in after-market trade on Wednesday. Based on the year-to-date price action, the stock is outperforming its peers including U.S. Steel (X) and Nucor (NUE) this year. AK Steel released its third-quarter earnings on Wednesday. The company reported revenues of $1.54 billion in the quarter compared to $1.74 billion in the third quarter of 2018. The revenues were lower than expected. AK Steel missed on the bottom line as well. The company generated an EPS of $0.01 in the quarter compared to $0.21 in the third quarter of 2018.

In the first nine months of 2019, the company’s EPS was similar to its EPS in the third quarter of 2018. While the third quarter of 2018 was a high point for the broader steel industry, it highlights how US steel companies’ profitability has fallen this year despite President Trump’s Section 232 tariffs. Despite a 25% tariff on imports, AK Steel was barely profitable in the third quarter. U.S. Steel, which will report its earnings today after the market close, expects to post a net loss in the quarter. Other steel companies have also reported sequentially lower earnings.

During the third-quarter earnings release, AK Steel lowered its 2019 shipment and earnings guidance. The company blamed the strike at General Motors for fewer shipments this year. Notably, the company sells most of its steel to automotive customers. The company lowered its 2019 earnings guidance due to the sharp fall in spot steel prices. The lower volume and shipment guidance wasn’t really surprising.

During the third-quarter earnings release, AK Steel sounded optimistic about its automotive contracts in 2020. CEO Roger K. Newport said, “As we look to 2020, we are excited about our prospects, particularly in automotive where we expect meaningful market share growth.”

Nucor has also been expanding its share in the auto sheet market. While AK Steel looks optimistic about gaining market share in the automotive end market, it will be interesting to hear management’s views on 2020 contract pricing. We might get more insights in the earnings conference call today. Stay tuned for more analysis.