AK Steel Receives Regulatory Clearance for Severstal Dearborn Acquisition; Provides 3Q14 Guidance
09/03/2014 - AK Steel provided guidance for its third quarter 2014 financial results.
AK Steel said it expects to report net income of US$0.05 to US$0.10 per diluted share of common stock, representing a substantial improvement over its second quarter results.
Severstal Dearborn Acquisition Update
On 2 September 2014, AK Steel was notified by the Department of Justice that the company has received early termination of the Hart-Scott-Rodino review for the proposed acquisition of Severstal Dearborn LLC. As a result of receiving this clearance, subject to customary closing conditions, the company expects to complete the acquisition in the third quarter of 2014. The company expects the acquisition of Dearborn to enhance its future earnings and improve its credit profile and liquidity, as well as position the company to better serve the needs of its customers in the future.
The guidance contained in this release does not include the effects on the company's earnings related to the acquisition of Severstal Dearborn.
Shipments
For the third quarter of 2014, the company expects shipments of approximately 1,350,000 tons, a decrease of approximately 3% from the 1,398,000 tons shipped in the second quarter of 2014. Shipments for the third quarter reflect the effects of reduced production at the company's Ashland Works blast furnace due to a recent unplanned maintenance outage and subsequent production shortfall, partly offset by continued strong demand from the automotive market.
Pricing
The company expects its average selling price for the third quarter of 2014 will be approximately US$1,100 per ton, similar to the second quarter average selling price of US$1,095per ton. The small anticipated increase in the company's overall average selling price is primarily due to a lower percentage of product shipments to the carbon spot market in the third quarter compared to the second quarter.
Ashland (KY) Works Blast Furnace Outage
As previously disclosed, the company experienced an unplanned outage at its Ashland Works blast furnace during the third quarter of 2014. The Ashland Works blast furnace has returned to operation, but it continues to operate at rates of production below its normal levels. To return the blast furnace to normal production levels and to provide more reliable operations in the future, the company believes it is prudent to accelerate a planned outage from the first half of 2015 to the fourth quarter of 2014. Among other things, the planned outage will include a reline of the blast furnace hearth. This planned outage is now expected to begin in late October and last approximately 28 days. The capital investment associated with the hearth reline is expected to be approximately US$17 million.
The reduced operations at the Ashland Works blast furnace will impact both the third and fourth quarters of 2014 in terms of production, shipments, operating costs and margins.
For the third quarter, the company estimates that the unplanned outage and the subsequent lower than normal production levels will negatively affect its financial results by approximatelyUS$25 million. This impact is reflected in the company's third quarter guidance. For the fourth quarter, the company estimates that its financial results will be negatively impacted by approximately US$13 million for reduced production from the blast furnace prior to the planned outage in October and by US$29 million related to repair costs and the loss of production during the planned outage. The company will purchase merchant carbon slabs and increase production of carbon slabs at its Butler Works electric arc furnace to offset a portion of the reduced production at Ashland Works. In addition, to the extent the company's acquisition of Severstal Dearborn is completed in advance of this planned outage, the company will utilize the operational flexibility afforded by the addition of the Dearborn blast furnace to help meet the needs of its customers. Notwithstanding the negative impact from the Ashland Works blast furnace issues, the company currently anticipates an improvement in its financial performance in the fourth quarter compared to the third quarter.
The company believes that the reline of the blast furnace hearth will position it well to provide stable blast furnace operations in the future by allowing the company to avoid the unplanned disruptions that have occurred in 2014. In addition, the company expects this investment to reduce the company's future production costs by returning the Ashland Works blast furnace to normal operating levels and allow the company to better serve its customers in the future.
Lower Raw Material and Energy Costs
The company will benefit from substantially lower iron ore and energy costs in the third quarter compared to the prior quarter.
Income Taxes
The company said that it expects to record income tax expense of approximately US$3 million for the third quarter of 2014 using the discrete method of accounting for income taxes.
Magnetation Joint Venture Update
The company anticipates the start-up of Magnetation's pellet plant will occur in September 2014. The pricing for the Magnetation pellets provided to the company will be at a discount to the then current market price. In addition, AK Steel also will benefit from logistics and working capital advantages associated with purchasing Magnetation pellets. AK Steel expects to consume the Magnetation pellet plant's production at its Ashland Works and/or Middletown Works blast furnaces. When fully ramped up, Magnetation's pellet plant is expected to produce approximately 50% of the annual pellets consumed at the company's Ashland Works and Middletown Works blast furnaces and continues to represent an important long-term strategic hedge against volatile iron ore prices.
Severstal Dearborn Acquisition Update
On 2 September 2014, AK Steel was notified by the Department of Justice that the company has received early termination of the Hart-Scott-Rodino review for the proposed acquisition of Severstal Dearborn LLC. As a result of receiving this clearance, subject to customary closing conditions, the company expects to complete the acquisition in the third quarter of 2014. The company expects the acquisition of Dearborn to enhance its future earnings and improve its credit profile and liquidity, as well as position the company to better serve the needs of its customers in the future.
The guidance contained in this release does not include the effects on the company's earnings related to the acquisition of Severstal Dearborn.
Shipments
For the third quarter of 2014, the company expects shipments of approximately 1,350,000 tons, a decrease of approximately 3% from the 1,398,000 tons shipped in the second quarter of 2014. Shipments for the third quarter reflect the effects of reduced production at the company's Ashland Works blast furnace due to a recent unplanned maintenance outage and subsequent production shortfall, partly offset by continued strong demand from the automotive market.
Pricing
The company expects its average selling price for the third quarter of 2014 will be approximately US$1,100 per ton, similar to the second quarter average selling price of US$1,095per ton. The small anticipated increase in the company's overall average selling price is primarily due to a lower percentage of product shipments to the carbon spot market in the third quarter compared to the second quarter.
Ashland (KY) Works Blast Furnace Outage
As previously disclosed, the company experienced an unplanned outage at its Ashland Works blast furnace during the third quarter of 2014. The Ashland Works blast furnace has returned to operation, but it continues to operate at rates of production below its normal levels. To return the blast furnace to normal production levels and to provide more reliable operations in the future, the company believes it is prudent to accelerate a planned outage from the first half of 2015 to the fourth quarter of 2014. Among other things, the planned outage will include a reline of the blast furnace hearth. This planned outage is now expected to begin in late October and last approximately 28 days. The capital investment associated with the hearth reline is expected to be approximately US$17 million.
The reduced operations at the Ashland Works blast furnace will impact both the third and fourth quarters of 2014 in terms of production, shipments, operating costs and margins.
For the third quarter, the company estimates that the unplanned outage and the subsequent lower than normal production levels will negatively affect its financial results by approximatelyUS$25 million. This impact is reflected in the company's third quarter guidance. For the fourth quarter, the company estimates that its financial results will be negatively impacted by approximately US$13 million for reduced production from the blast furnace prior to the planned outage in October and by US$29 million related to repair costs and the loss of production during the planned outage. The company will purchase merchant carbon slabs and increase production of carbon slabs at its Butler Works electric arc furnace to offset a portion of the reduced production at Ashland Works. In addition, to the extent the company's acquisition of Severstal Dearborn is completed in advance of this planned outage, the company will utilize the operational flexibility afforded by the addition of the Dearborn blast furnace to help meet the needs of its customers. Notwithstanding the negative impact from the Ashland Works blast furnace issues, the company currently anticipates an improvement in its financial performance in the fourth quarter compared to the third quarter.
The company believes that the reline of the blast furnace hearth will position it well to provide stable blast furnace operations in the future by allowing the company to avoid the unplanned disruptions that have occurred in 2014. In addition, the company expects this investment to reduce the company's future production costs by returning the Ashland Works blast furnace to normal operating levels and allow the company to better serve its customers in the future.
Lower Raw Material and Energy Costs
The company will benefit from substantially lower iron ore and energy costs in the third quarter compared to the prior quarter.
Income Taxes
The company said that it expects to record income tax expense of approximately US$3 million for the third quarter of 2014 using the discrete method of accounting for income taxes.
Magnetation Joint Venture Update
The company anticipates the start-up of Magnetation's pellet plant will occur in September 2014. The pricing for the Magnetation pellets provided to the company will be at a discount to the then current market price. In addition, AK Steel also will benefit from logistics and working capital advantages associated with purchasing Magnetation pellets. AK Steel expects to consume the Magnetation pellet plant's production at its Ashland Works and/or Middletown Works blast furnaces. When fully ramped up, Magnetation's pellet plant is expected to produce approximately 50% of the annual pellets consumed at the company's Ashland Works and Middletown Works blast furnaces and continues to represent an important long-term strategic hedge against volatile iron ore prices.
