Steelmakers Show Solid Earning But Lose Ground On Q4 Projection

Joel Anderson  |

US Steel Corporation (X) and AK Steel (AKS) both beat analyst expectations for their Q3 earnings but lost value after industry outlooks for the next quarter proved to be dreary. Weak economies in Europe and the United States have depressed construction spending while increased raw materials costs have cut into potential profits.

Q3 Earnings Beat Estimates

Quarterly earnings reports for both US Steel and AK Steel showed some promise, with losses narrowing ahead of analysts predictions.  AK Steel reported a net loss of only $3.5 million for the quarter, or $0.03 per share, down from last year's Q3 losses of $59.4 million or $0.59 per share.  The company reported an operating profit of $11.4 million or $8 a ton for the quarter.  These numbers included a $0.05 per share expense for an incident involving a damaged furnace at their Butler Works, meaning that AK Steel still managed to beat average analyst expectations of $0.01 a share that excluded special items.

US Steel, meanwhile, swung into profit after it had posted nine consecutive quarters with losses until the previous period. Revenue for the quarter was $5.5 billion, or $0.72 per share, beating analyst expectations of closer to $0.55 per share.  They posted a net profit of $22 million, or $0.15 per share, a major improvement from last year's Q3 losses of $51 million, or $0.35 per share.  The profitable quarter was driven by its flat-rolled steel, the company's most profitable segment, returning to profit along with a 19 percent increase in operating profit for their tubular steel segment, the best result there since 2008.

Gloomy Q4 Outlook Drives Down Stock Prices

Despite the strong earnings reports, AK Steel and US Steel both saw their stock plunge in Tuesday's trading because of the low expectations for Q4. US Steel expressed expectations of depressed profits in the next quarter, citing low demand due to the flagging economies in Europe and the United States as well as dramatically increased costs for raw materials.  The depressed European economy proved to be the greatest concern, with decreased profits expected in its flat-rolled segment.  AK Steel, for their part, refused to even make projections for Q4 until later in the quarter.  All this drove investors to flee from the stocks, prompting a sell off that US Steel drop over $2 a share for an 8 percent loss and AK Steel losing over 13 percent.  Other steel manufacturers got in the act as well, with Nucor (NUE), ArcelorMittal (MT), POSCO (PKX), and Steel Dynamics, Inc. (STLD) all losing between 1.5 and 3.5 percent in early trading.  Concerns about the European Economy and reduced construction demand hurt a variety of basic materials and mining stocks Tuesday, including BHP Billiton (BLT), Rio Tinto (RIO), Xstrata, PLC. (XTA), Anglo American (AAL), and Antofagasta (ANTO).

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
RIO Rio Tinto Plc 58.83 0.81 1.40 2,230,056 Trade
AKS AK Steel Holding Corporation 3.16 -0.05 -1.56 9,788,498 Trade
LCNB LCNB Corporation 17.14 0.18 1.06 17,152 Trade
AAL American Airlines Group Inc. 35.49 0.51 1.46 5,393,564 Trade
X United States Steel Corporation 24.10 -0.02 -0.08 8,442,728 Trade
MT Arcelor Mittal NY Registry Shares NEW 23.28 0.20 0.87 1,617,123 Trade
BLT Blount International Inc n/a n/a n/a 0 Trade
PKX POSCO 60.89 0.13 0.21 91,770 Trade
NUE Nucor Corporation 61.19 0.13 0.21 1,852,603 Trade

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