Company’s operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania that produce flat-rolled carbon steels, including coated, cold-rolled and hot-rolled
products, and specialty stainless and electrical steels that are sold in hot band, and sheet and strip form.
It would be interesting to check this stock's performance as we follow the slow recovery of economy. My analysis is based on financial ratio analysis model.
AKS-----------Annual Financial Ratios
At first, the past four years' ratios are calculated as follows:
Obviously, 2009 is the worst year for the company: lowered sales with decreased margins. And most of the efficiency ratios are low too. Good thing is the working capital (days) is still roughly in line with
previous years. In addition, the liquidity ratios such as current ratio, quick ratio are still in a healthy state.
When I look at the cash flows for the past four years, I found AKS has positive operating cash flow (OCF) although with a decreasing trend. The total CF are negative however it seems that the investing cash low is the key reason causing negative total cash flow. Therefore, the results are understandable onsidering the economic conditions during the past few years.
Well, so far no STOP light. The next questions I ask myself are how the company compares with peers and what's the performance of recent quarters.
AKS------------Comparisons with some peers
I selected a few US firms with an Latin ADR. TX for Latin is definitely doing better than all the US firms. Not surprising,right? US probably has the worse housing, auto, and maybe everything in 2009. And it seems the economic conditions will not get better soon.
There are a lot of information on the ratio comparison table. I'll just summarize a few takeaways:
1, TX's performance is the best among the group (i probably should also get a few chinese company to compare)
2, AKS is pretty good at margins compared to the rest of the group.And also pretty good at asset efficiencies.
3, AKS's leverage is highest one while the liquidity are fine. why? As I dig a little bit further I realized the pension liability is a very big chunk among the liabilities. Good or bad? In my opinion, it's not a big deal in short term. Not sure about long term.
Well, if you think US will still be the big place for projects (housing, auto,etc) needing steel products. AKS is the better choice among the group from above analysis. BTW, AKS' international sales is around less than 20%. And the litigation from Chinese steel makers will force US steel makers increase price which in turn reduces the competitiveness leading to sales slide. AKS just announced price increase yesterday in
the effort to compensate the increase of its raw materials' price. I expect the firm will see increased sales with further reduced margin in next quarter report.
AKS--------------Quarterly results
Gross margin is improving from 2009. The same goes with efficiency. Working capital efficiency is also improving. Other ratios also indicate the stability for AKS' performance.
AKS' future quarters will depend on the raw materials' price and demand. If 3rd quarter GDP still show growth and auto retail sales can pick up again, it might have a good run.
Again, pay attention to pension and stock options. It could be a stopper in the future.
http://www.prnewswire.com/news-releases/ak-steel-updates-third-quarter-2010-outlook-102946249.html
ReplyDelete1, advanced outage
2, outlook downward adjustment: +15/ton to -20/ton---- around $55Million.
3, estimation of ore price will increase more than 65% as they were expecting.
Market reaction: -5.8%; -0.84/share. Since AKS has 110 Million shares. the market value loss is around 90 millions.
The company said it is now planning to take an 11-day maintenance outage on its blast furnace in Ashland, Kentucky, beginning approximately September 20, 2010. This outage was previously planned to occur in the first-half of 2011, but has been advanced due to furnace conditions. Further, the company now anticipates higher raw material and operating costs in the third quarter, as well as a modest increase in the costs associated with an environmental remediation project.
The impact of these changes on the company's original guidance for the third quarter would result in an operating loss of approximately $20 per ton for the third quarter of 2010. The company's original guidance was for an operating profit of $15 per ton for the third quarter. Nearly half of the lower expected financial results for the third quarter are attributable to the acceleration of the Ashland blast furnace outage.
Additional Update Regarding Iron Ore Costs
Iron ore is one of the company's principal raw materials, and the price AK Steel pays for iron ore under the contracts with its three major iron ore suppliers is based upon an annual global iron ore benchmark price. To date, no annual global benchmark price for iron ore has been established by the industry for 2010. In the absence of such a global benchmark price for 2010 iron ore purchases, the company used an assumed 65% increase from the 2009 benchmark price for purposes of its second quarter 2010 financial results and third quarter outlook.
While AK Steel still cannot reliably predict a 2010 global iron ore benchmark price, the company now believes that the year-over-year increase in any such benchmark, if and when it is established, likely will be higher than 65%. The effect of any such increase in the benchmark beyond 65% would be in addition to the changes in anticipated third quarter earnings addressed in the preceding update section. AK Steel has previously said, and reiterates with this revised outlook, that every five percentage points of variation (up or down) from its assumed year-over-year benchmark iron ore price increase of 65% would impact the company's third quarter 2010 results by approximately $11 million, or approximately $7 per ton.