What's in Store for AK Steel (AKS) This Earnings Season?

AK Steel Holding Corporation AKS is slated to release fourth-quarter 2018 results, after market close on Jan 28.

The company reported net income of $67.2 million or 21 cents per share in the third quarter of 2018, up roughly three times from net income of $22.3 million or 7 cents in the prior-year quarter. Earnings per share, however, missed the Zacks Consensus Estimate of 23 cents.

Net sales of $1,735.6 million in the third quarter rose around 16% year over year but missed the Zacks Consensus Estimate of $1,821 million.

The company topped earnings estimates in two of the trailing four quarters, the average positive surprise being 61%.

Shares of AK Steel have lost 58.4% in a year compared with the industry’s fall of 30.8%.

Let’s see how things are shaping up for this announcement.

Factors at Play

AK Steel, in its third-quarter call, said that it expects market conditions to remain strong in the fourth quarter. The company expects flat-rolled shipments to be flat compared to the third quarter. It also expects average selling price to decline 2-3% in the quarter.

Moreover, the company expects adjusted EBITDA margin to drop around 150 basis points sequentially in the fourth quarter. However, the company expects year-over-year growth in adjusted EBITDA.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1,696 million, reflecting an increase of 13.4% from the year-ago quarter. The Zacks Consensus Estimate for total shipments is pegged at 1,426,000 tons, essentially flat compared with the sequentially prior quarter.

AK Steel should benefit from healthy demand in the automotive market. The company is looking to continue to grow its core automotive business. It is also actively pursuing cost-cutting actions, which should support its margin. Moreover, the acquisition of Precision Partners boosted the company’s focus on the rapidly growing automotive light weighting industry and its position in advanced high strength steels. The acquisition should contribute to the company’s sales in the fourth quarter.

However, lower expected prices are likely to affect the fourth quarter results. The Zacks Consensus Estimate for average selling price per ton for AK Steel for the fourth quarter is currently pegged at $1,085, reflecting a 2.6% decline from the sequentially prior quarter.

The company is also witnessing significant volatility in raw material costs. AK Steel saw an uptick in year-over-year costs for certain raw materials in the first three quarters of 2018. The same is likely to persist in the fourth quarter.

AK Steel also expects planned outage costs of around $15 million for the fourth quarter compared with $4.7 million in the previous quarter. The company expects expenses associated with planned outages to be around $40 million for 2018.

AK Steel Holding Corporation Price and EPS Surprise

AK Steel Holding Corporation Price and EPS Surprise | AK Steel Holding Corporation Quote

Earnings Whispers

Our proven model does not conclusively show a beat for AK Steel this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for AK Steel is currently pegged at -1.08%. The Zacks Consensus Estimate for fourth-quarter earnings currently stands at 12 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AK Steel currently carries a Zacks Rank #4 (Sell).

Please note that stock with a Zacks Rank #4 or 5 (Strong Sell) should never be considered going into an earnings announcement.

Stocks to Consider

Here are some companies in the basic materials space that you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

B2Gold Corp. BTG has an Earnings ESP of +12.50% and carries a Zacks Rank #2.

Ryerson Holding Corporation RYI has an Earnings ESP of +48.34% and carries a Zacks Rank #3.

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