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What to Watch in AK Steel’s Q3 Earnings Today

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  • AK Steel’s third-quarter earnings are expected today after the markets close. The company will hold its earnings call on Thursday. Usually, the stock is volatile after the earnings release.
  • AK Steel stock has outperformed the steel space this year. The stock has risen by almost 21% this year. Most of the returns are due to the rally in October. However, the stock could be volatile with the third-quarter earnings looming. Apart from the hard numbers, there’s a lot to watch in AK Steel’s third-quarter earnings call.
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AK Steel’s Q3 earnings

AK Steel (AKS) will release its third-quarter earnings today after the markets close. U.S. Steel’s (X) third-quarter earnings are expected later this week. Nucor (NUE) and Cleveland-Cliffs (CLF) already reported their third-quarter earnings. Both of the companies posted better-than-expected earnings. Meanwhile, AK Steel stock has been on fire this month. So far, the stock has gained almost 20% in October. AK Steel posted better-than-expected earnings in the second quarter. The stock rose more than 18% on July 30. However, the company lowered its 2019 earnings guidance during its second-quarter earnings release.

Third-quarter earnings estimates

The analysts polled by Thomson Reuters expect AK Steel to post revenues of $1.65 billion in the third quarter. The company generated revenues of $1.68 billion in the sequential quarter and $1.74 billion in the third quarter of 2018. The expected fall in revenues isn’t surprising due to the sharp deterioration in US spot steel prices. The sequential fall in AK Steel’s third-quarter revenues might be the lowest compared to its peers due to contract sales. However, contract sales might be a concern for AK Steel investors.

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Analysts expect AK Steel’s third-quarter EBITDA to fall to $100 million in the third quarter compared to $151 million in the sequential quarter. The company posted an adjusted EBITDA of $161 million in the third quarter of 2018. AK Steel’s EBITDA will likely fall even more in the fourth quarter. However, analysts expect AK Steel’s earnings to improve in the first quarter of 2020. As a result, contract pricing would come into play.

Watch out for contract pricing

AK Steel sells most of its steel to contract customers. Even though spot steel prices fell in 2019, AK Steel managed to partially dodge the bullet due to its lower spot exposure and contract pricing. Now, as we approach 2020, AK Steel will be in discussion with automotive companies about 2020 contracts. Currently, spot steel prices are sitting near multiyear lows. While US steel mills have announced a price hike, prices might not recover much in the short term. Lower spot steel prices might have a negative impact on AK Steel’s 2020 contract pricing. Contract pricing worked to AK Steel’s advantage in 2019. However, the scenario might change if US steel prices rebound next year.

Investors should keep their seat belts tightened as AK Steel reports its third-quarter earnings. We’ll follow up with post-earnings analysis.

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