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AK Steel's Operations Impacted by Winter Weather in First Quarter
03/25/2014 - AK Steel provided guidance for its first quarter 2014 financial results.
AK Steel said it expects to report a net loss of US$0.44 to US$0.49 per diluted share of common stock. The expected net loss was driven principally by several significant factors during the first quarter that the company does not expect to continue during the rest of the year, including higher energy costs related to the extreme cold weather, an unplanned blast furnace outage, the acceleration of a planned blast furnace outage, and a charge for a tentative legal settlement.
Shipments
AK Steel expects shipments of approximately 1,250,000 to 1,275,000 tons in the first quarter of 2014, an approximate 10% to 12% decrease from 1,420,000 tons in the fourth quarter of 2013. The reduction in shipments for the first quarter is attributable principally to the effects of the unplanned outage at the company’s Ashland Works blast furnace (described below) resulting in a decline in shipments of carbon steel to the spot market and a decline in shipments of electrical steel, partially offset by higher automotive shipments.
Pricing
The company expects its average selling price for the first quarter of 2014 to increase by approximately 6% to approximately US$1,095 from its average selling price of US$1,031 per ton in the fourth quarter of 2013. The increase in average selling price is primarily due to a richer shipment mix of value-added products.
Summary of Significant Cost Drivers
The company said that the extreme cold weather conditions in the United States during the first quarter of 2014 impacted its operations and caused severe spikes in energy costs. More specifically, the company expects the cost of natural gas and electricity to increase by approximately US$30 million in the first quarter of 2014 compared to such costs in the fourth quarter of 2013. A second major driver of the company’s projected loss for the first quarter was the previously disclosed incident in late February at the company’s Ashland Works blast furnace that temporarily resulted in an unplanned outage of that furnace. The company immediately began repairs and the blast furnace resumed operations in March. The company expects to incur approximately US$18 million in the first quarter related to that unplanned outage at Ashland Works. In addition, the company expects to incur approximately US$29 million for planned outage costs for the first quarter of 2014 compared to US$1.5 million in the fourth quarter of 2013. The higher planned outage costs in the first quarter of 2014 include the acceleration of the majority of a previously disclosed planned maintenance outage at Ashland Works that previously had been scheduled for the second quarter of 2014. The company does not have any other significant outages planned for the second quarter of 2014. During the first quarter, the company also expects to incur a charge for a tentative settlement of pending litigation in the amount of US$5.8 million. In addition to these four significant cost drivers, the company said that it also expects to incur higher pre-tax costs in the first quarter of 2014 compared to the fourth quarter of 2013 from higher iron ore and carbon scrap costs.
Income Taxes
AK Steel said that it expects to record an income tax benefit at an effective tax rate of approximately 29% for the first quarter of 2014.
AK Steel produces flat-rolled carbon, stainless and electrical steels, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets. The company employs about 6,100 men and women in Middletown, Mansfield, Coshocton and Zanesville, Ohio; Butler, Pa.; Ashland, Ky.; Rockport, Ind.; and its corporate headquarters in West Chester, Ohio.
Shipments
AK Steel expects shipments of approximately 1,250,000 to 1,275,000 tons in the first quarter of 2014, an approximate 10% to 12% decrease from 1,420,000 tons in the fourth quarter of 2013. The reduction in shipments for the first quarter is attributable principally to the effects of the unplanned outage at the company’s Ashland Works blast furnace (described below) resulting in a decline in shipments of carbon steel to the spot market and a decline in shipments of electrical steel, partially offset by higher automotive shipments.
Pricing
The company expects its average selling price for the first quarter of 2014 to increase by approximately 6% to approximately US$1,095 from its average selling price of US$1,031 per ton in the fourth quarter of 2013. The increase in average selling price is primarily due to a richer shipment mix of value-added products.
Summary of Significant Cost Drivers
The company said that the extreme cold weather conditions in the United States during the first quarter of 2014 impacted its operations and caused severe spikes in energy costs. More specifically, the company expects the cost of natural gas and electricity to increase by approximately US$30 million in the first quarter of 2014 compared to such costs in the fourth quarter of 2013. A second major driver of the company’s projected loss for the first quarter was the previously disclosed incident in late February at the company’s Ashland Works blast furnace that temporarily resulted in an unplanned outage of that furnace. The company immediately began repairs and the blast furnace resumed operations in March. The company expects to incur approximately US$18 million in the first quarter related to that unplanned outage at Ashland Works. In addition, the company expects to incur approximately US$29 million for planned outage costs for the first quarter of 2014 compared to US$1.5 million in the fourth quarter of 2013. The higher planned outage costs in the first quarter of 2014 include the acceleration of the majority of a previously disclosed planned maintenance outage at Ashland Works that previously had been scheduled for the second quarter of 2014. The company does not have any other significant outages planned for the second quarter of 2014. During the first quarter, the company also expects to incur a charge for a tentative settlement of pending litigation in the amount of US$5.8 million. In addition to these four significant cost drivers, the company said that it also expects to incur higher pre-tax costs in the first quarter of 2014 compared to the fourth quarter of 2013 from higher iron ore and carbon scrap costs.
Income Taxes
AK Steel said that it expects to record an income tax benefit at an effective tax rate of approximately 29% for the first quarter of 2014.
AK Steel produces flat-rolled carbon, stainless and electrical steels, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets. The company employs about 6,100 men and women in Middletown, Mansfield, Coshocton and Zanesville, Ohio; Butler, Pa.; Ashland, Ky.; Rockport, Ind.; and its corporate headquarters in West Chester, Ohio.
