AK Steel (AKS) Tops Q3 EPS by 4c; Expects Q4 Impact on Planned Ashland Works Outage

AK Steel (NYSE: AKS) reported Q3 EPS of $0.12, $0.04 better than the analyst estimate of $0.08. Revenue for the quarter came in at $1.59 billion versus the consensus estimate of $1.49 billion.

Shipments were 1,462,900 tons.

The company said that its average selling price for the third quarter of 2014 was $1,089 per ton, down slightly from the second quarter of 2014. The minor decrease from the second quarter was due to a change in product mix related to the addition of Dearborn. The company also said its average selling price for the third quarter of 2014 increased 2% from the third quarter of 2013, primarily as a result of higher spot market prices for carbon steel products. Costs of products sold increased in the third quarter of 2014 due to the acquisition of Dearborn (see discussion below) and to the continued adverse effects from an unplanned outage at the Ashland Works blast furnace. During the third quarter, the company incurred $23.2 million for unplanned outage costs at the Ashland Works blast furnace and for costs related to lower than normal production levels. The company also incurred $1.1 million of costs for planned outages during the third quarter of 2014, compared to $4.2 million in the year-ago third quarter and $2.5 million in the second quarter of 2014.

The 2014 third quarter results include a LIFO credit of $10.9 million, compared to a LIFO credit of $15.8 million for the third quarter of 2013 and a LIFO credit of $3.3 million for the second quarter of 2014. Included in the LIFO credit for the third quarter of 2014 is a credit of $7.3 million related to the Dearborn acquisition.

The company ended the third quarter of 2014 with total liquidity of $912.3 million, consisting of cash and cash equivalents and $868.6 million of availability under the company's revolving credit facility. Consistent with prior seasonal patterns, working capital was a source of $19.0 million of cash in the third quarter of 2014. The company anticipates that working capital will be a source of cash in the fourth quarter of 2014.

Fourth Quarter 2014 Outlook

Consistent with its current practice, the company expects to provide detailed guidance for its fourth quarter results in December. However, in advance of that guidance, the company notes that its fourth quarter results will be affected by a planned outage at the company's Ashland Works blast furnace which began in late October and is expected to last approximately 28 days. That outage previously had been planned to occur in 2015, but has been advanced to fully address operational issues with the Ashland Works blast furnace that began earlier this year. Among other things, the planned outage will include a reline of the blast furnace hearth.

The reduced operations at the Ashland Works blast furnace as a result of the outage will affect the fourth quarter of 2014 in terms of production, shipments, operating costs and margins. In the fourth quarter of 2014, the company expects to make capital investments of $20.0 million and to incur costs of approximately $30.0 million associated with the planned outage itself and reduced production levels at Ashland Works in the period prior to the outage. The company took steps in advance of the planned outage to minimize the potential impact on its customers, including purchasing additional slabs and building inventory through increased production at other plants.

For earnings history and earnings-related data on AK Steel (AKS) click here.

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