AK Steel announces Q1 2019 financial results
AK Steel reported its financial results for the first quarter of 2019.
First Quarter 2019 Highlights
1. Sales of USD 1,697.7 million, a 2% increase from first quarter 2018
2. Net loss of USD 4.5 million, or USD 0.01 per diluted share, including the Ashland Works closure charge of USD 77.4 million
3. Adjusted net income of USD 72.9 million, or USD 0.23 per diluted share
4. Adjusted EBITDA of USD 160.9 million, or 9.5% of sales; up 36% from a year ago
Mr Roger K Newport Chief Executive Officer said that “Our solid first quarter operating performance benefitted from our annual customer contract renewals. A higher proportion of contractual sales helps to reduce the volatility in our business and this was reflected in our first quarter results. We also continued to strengthen our position with automotive manufacturers by commercializing new steel solutions, including through our downstream tubing and stamping operations.”
AK Steel reported a net loss of USD 4.5 million, or USD 0.01 per diluted share of common stock, for the first quarter of 2019, which included a USD 77.4 million charge for the Ashland Works closure discussed below. Excluding this item, adjusted net income was USD 72.9 million, or USD 0.23 per diluted share, for the period. For the first quarter of 2018, net income was USD 28.7 million, or USD 0.09 per diluted share.
The company’s adjusted EBITDA was USD 160.9 million, or 9.5% of net sales, for the first quarter of 2019. Adjusted EBITDA increased 36% from USD 118.7 million, or 7.2% of net sales, in the first quarter a year ago. Adjusted EBITDA in the recent first quarter included mark-to-market gains of USD 21.8 million from iron ore derivatives. For the same period in 2018, the company recorded a mark-to-market loss of USD 7.7 million. Also included in adjusted EBITDA for the recent first quarter was an USD 11.6 million gain from the sale of electrical transmission assets at the company’s Dearborn Works. The sale of the assets will transfer the maintenance requirements of those assets to the buyer.
Net sales for the recent first quarter were USD 1.7 billion, a 2% increase, compared to the first quarter of 2018. The increase was due to higher selling prices for most products and increased shipments to the distributors and converters market, partly offset by lower shipments to the automotive market, as expected.
The company reported liquidity of USD 937.5 million at the end of the first quarter, consisting of cash and cash equivalents and USD 896.8 million of availability under the company’s revolving credit facility. The company reported outstanding borrowings under the credit facility of USD 380.0 million at March 31, 2019.
Ashland Works Closure
In January 2019, the company announced its intention to close its Ashland Works facility. The Ashland Works facility includes a blast furnace and steelmaking operations which were idled in December 2015, and a hot dip galvanizing coating line, which has remained operational. The company is transitioning its products to its other US coating lines, and will close the Ashland Works line before the end of 2019. The company recorded a charge of USD 77.4 million during the first quarter of 2019 for termination of certain take-or-pay supply agreements, supplemental unemployment and other employee benefit costs, pension and OPEB termination benefits (including USD 13.3 million recorded in pension and OPEB (income) expense), estimated multi employer plan withdrawal liability, and other costs.
Based on the change in hot-rolled carbon spot market pricing from approximately USD 720 per ton in January to about USD 690 per ton currently, the company is updating its annual guidance. The company’s annual guidance had indicated that for every USD 10 change in the carbon hot-rolled coil spot market price, annual earnings would be impacted by USD 5 to USD 7 million. Accordingly, the company now expects net income to be in the range of USD 76 to USD 96 million, or USD 0.24 to USD 0.30 per diluted share. Excluding the impact of the Ashland Works closure, adjusted net income is expected to be in the range of USD 153 to USD 173 million, or USD 0.48 to USD 0.54 per diluted share, and adjusted EBITDA to be in the range of USD 505 to USD 525 million. This updated guidance aligns with the company’s previous guidance.
Other outlook items include:
The company’s adjusted net income and adjusted EBITDA guidance exclude the effects of the Ashland Works charge of USD 77.4 million recorded in the first quarter of 2019, as discussed above.
Planned maintenance outage expenditures in 2019 are still expected to be USD 70 to USD 80 million and substantially heavier in the second and fourth quarters. As a result, the company expects to have a similar level of adjusted EBITDA between the first half and the second half of the year.
The company expects working capital to be a small source of cash for the year. In January, the company had indicated that working capital would be a small use of cash.
The other annual guidance items remain unchanged from the company’s January guidance.
The foregoing outlook is based on AK Steel’s current estimates and may change based on business conditions and other factors. There are many other items that could affect the company’s 2019 results, as outlined in the Forward-Looking Statements below, including developments in the domestic and global economies, in the company’s business, in trade actions and the imposition of tariffs, and in the businesses of the company’s customers, suppliers and competitors.
Source : STRATEGIC RESEARCH INSTITUTE