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AK Steel Holding Corp. (NYSE: AKS)

AK Steel Holding Corp. (AKS), through its subsidiaries, engages in the manufacture of flat-rolled carbon, stainless and electrical steels. With a diverse product line, AKS caters to all of the major automakers, as well as key producers in the appliance, construction, manufacturing and electrical equipment industries. Its wholly owned subsidiary AK Tube LLC produces carbon and stainless electric resistance welded (ERW) tubular steel products for truck, automotive and other markets. The Company has major steelmaking facilities in Middletown, Mansfield, Coshocton and Zanesville, Ohio; Butler, Pennsylvania; Ashland, Kentucky; and Rockport, Indiana. AK Tube LLC has operations in Walbridge, Ohio and Columbus, Indiana. AKS is a Fortune 500 company with more than $7 billion in sales.

Founded in 1900 as the American Rolling Mills Corp., AKS is headquartered in West Chester, Ohio.

Source: Reuters.com, SEC Filings.

Financial Summary

Despite the continuing global recession, which negatively impacted the Company’s shipment levels, AKS’ second quarter 2009 results showed a 35% improvement over the previous quarter. The Company reported a net loss of $47.2 million, or $0.43 per diluted share of common stock, for the second quarter of 2009, versus net income of $145.2 million, or $1.29 per diluted share, for the same period last year, but showed improvement over the first quarter of 2009 net loss of $73.4 million, or $0.67 per diluted share. Second quarter 2009 net sales came in at $793.6 million on shipments of 740,600 tons, compared to sales of $2,236.6 million on shipments of 1,737,800 tons for the year-ago quarter.

For the first half of 2009, the Company reported sales of $1,715.8 million on shipments of 1,519,400 tons, compared to $4,028.0 million on shipments of 3,316,200 tons in the first half of 2008. AKS ended the first half of 2009 with an operating loss of $172.4 million, or $113 per ton, in contrast to an operating profit of $407.6 million, or $123 per ton, it posted for the first half of 2008.

For the third quarter of 2009, shipments are expected to increase nearly 27% increase over second quarter 2009 shipments, while average per-ton selling price is expected to be approximately equivalent to the second quarter of 2009 level. In addition, the Company expects to benefit from lower operating and raw material costs in the third quarter, and achieve an approximate breakeven in operating profit.

FINANCIAL STRENGTH

Analyst Consensus

Source: Reuters.com

Analysts polled by Thomson Reuters rate shares of AKS a “Hold,” with one analyst recommending the stock a “Buy,” up from 0 analysts three months ago; two analysts expecting the stock to “Outperform,” down from three analysts three months ago; six analysts rating the stock a “Hold,” down from four analysts three months ago; two analysts expecting the stock to “Underperform,” down from three analysts three months ago; and one analyst rating the stock a “Sell,” the same number as three months ago.

Investment Highlights

Overview

AKS boasts of being the only domestic flat-rolled producer with significant presence in the three major steel markets- carbon, stainless and electrical. It offers a diverse product line to major automakers and key producers in the appliance, construction, manufacturing and electrical equipment industries. All of the Company’s major steelmaking facilities have been awarded ISO/TS 16949:2002 and ISO 9001:2000 Quality Management System certification, while its steel operations also hold certificates of registration under ISO 14001 for their environmental management systems. AKS is a Fortune 500 company with more than $7 billion in sales, and is included in the Standard & Poor’s 500 Global Industry Classification Standard (GICS) Steel Sub-Industry index.

Products and Market

The Company’s flat-rolled carbon steel products are sold primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, which include electrical transmission, heating, ventilation, and air conditioning and appliances. The Company also sells coated, cold rolled and hot rolled carbon steel products to distributors, service centers and converters who may further process these products prior to reselling them. It sells its stainless steel products to manufacturers and their suppliers in the automotive industry, to manufacturers of food handling, chemical processing, pollution control, medical and health equipment, and to distributors and service centers. AKS is the only full-line domestic producer of energy efficient electrical steels for power generation, power and distribution transformers, lighting systems and electric motors. The Company’s electrical steels, which are iron-silicon alloys with magnetic properties, are sold both domestically and internationally. Also, it makes carbon and stainless steel tubular products through AK Tube.

Recent News

At the end of 2008, many of the steel industry’s leading players started to struggle amid a sharp downturn in demand as the global credit crunch hit the industry. AKS had significant decline in shipments, sales and income, which translated to a net loss of $120.6 million, or $1.10 per diluted share, for the first half of 2009, in contrast to a net income $246.3 million, or $2.18 per diluted share, for the corresponding 2008 period. However, the Company’s second quarter 2009 results showed a 35% improvement over the first quarter despite an all-time low quarterly shipment level.

On September 1, AKS announced it will increase spot market prices for its carbon steel products, effective immediately for all new orders. According to the Company’s press release, base prices for hot rolled products will increase by $40 per ton, while base prices for cold rolled products will increase by $50 per ton. Also, base prices for coated products will increase by $60 per ton. AKS’ recent move follows last month’s announcement that it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products by 6% to 9%. AKS’ move to increase prices for carbon steel is seen by some market observers as an indicator that demand is picking up and perhaps getting stronger.

According to a report at MEPS (International) Ltd., a leading consultancy company operating in the steel sector worldwide, many western consumers are likely to increase their purchasers of steel related products by early next year. The report also stated that an improvement in the world economy, which is expected at the start of next year, “should help to stimulate demand for steel related products and accelerate the revival across Asia as exports from East to West grow.”

While the upturn in demand is anticipated next year, AKS is already looking forward to benefit in the third quarter of 2009. It expects shipments for the third quarter of 2009 to be approximately 940,000 tons, reflecting an increase of nearly 27% over second-quarter 2009 shipments, while average per-ton selling price will be approximately equivalent to the second quarter of 2009 level. With the completion of its planned blast furnace maintenance outage at the Middletown Works, AKS expects planned maintenance costs to be approximately $6 million lower compared to the second quarter. Also, it expects to benefit from lower operating and raw material costs in the third quarter compared to the second quarter.

The Company is eyeing an approximate breakeven in operating profit, which would represent an improvement of about $70 million, or about $100 per ton, over second-quarter results.

AKS also announced it will add a surcharge to electrical steel products shipped in October. According to the Company, a $185 per ton surcharge, which was calculated based on the August cost of raw materials and energy used to manufacture products, will be added to invoices.

On September 3, AKS signed a deal to buy metallurgical-grade coke from SunCoke Energy Inc. Metallurgical-grade coke is used as a fuel and a chemical reducing agent in the production of molten iron in a blast furnace. AKS purchases some of its coke requirements on the open market. According to AKS president and CEO James L. Wainscott, the agreement, which has a 12-year term with two five-year renewal options, furthers their strategic goal to better insulate the Company from volatile world market prices of its key commodity and energy inputs.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

On Sept. 04 2009, AKS closed at $20.33, 290.96% above the 52 week low of $5.20 set on November 20, 2008.

Currently, the MACD for AKS is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

The stock’s Bollinger Bands indicate a relatively stable condition as reflected by tighter than normal band width. Trading within its Bollinger Bands, the stock reflects neither an overbought nor oversold condition relative to its recent price trend.

Comparative Analysis

AKS has a negative Return on Assets of -7.91%, compared with an industry average of 0.20%; Return on Investment of -9.98%, compared with an industry average of 0.25%; and a Return on Equity of -34.41%, compared with an industry average of 0.34%.

Source: Reuters.com

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