The last time I checked in with steelmaker
AK Steel (NYSE: AKS), I requested a sneak
peak to determine when the metalsmiths would
regain profitability. Thankfully, the third quarter
presented a sufficient stabilization from the horrid
conditions of previous quarters to give resilient companies a
fighting chance at a profit.
AK Steel eked out a modest profit of $6.2 million -- a
noteworthy $53.4 million improvement from the $47.2 million
loss recorded for the second quarter. Despite beating
analysts' expectations, the result is 97% below the earnings
posted a year earlier, and a discouraging outlook from larger
competitor
U.S. Steel (NYSE: X) may have contributed to
the sharp sell-off in AK Steel shares Tuesday.
AK Steel's management wants you to look at the bright
side: "While the results may pale in comparison to the
year-ago records, in many respects the performance is even
more remarkable, given that third-quarter 2009 revenues fell
by more than half from the year-ago period." It's true,
achieving profitability under these conditions is laudable,
and AK Steel's expectation of a further 24% increase in
volumes shipped in the fourth quarter helps the steelmaker
stand out from the pack.
Big things come in smaller packages
At this stage in the domestic steel industry's process
of adapting to a new, reduced baseline of demand, the smaller
operators appear to have the upper hand. Domestic giants
Nucor (NYSE: NUE) and U.S. Steel both turned
in third-quarter losses, despite Nucor's observation that
industrywide
capacity utilizationimproved dramatically to 69% in the
third quarter from 46% in the second quarter. Meanwhile,
Steel Dynamics (Nasdaq: STLD) -- plus
relative pipsqueaks
Schnitzer Steel (Nasdaq: SCHN) and AK Steel
-- logged profitable quarters on the strength of this
inventory restocking phenomenon.
For its part, Schnitzer Steel managed a pint-sized profit
of $10 million alongside a revenue slide of 58% year over
year to just $556 million. While unfavorable scrap metal
prices dogged results, the company noted substantial strength
in export demand from Asia as scrap sales volumes approached
record levels.
After expanding its self-service auto-parts franchise to
enhance vertical integration near key scrap-processing
facilities, Schnitzer Steel looks well-positioned to benefit
from a
shift to thriftif a broader domestic recovery is elusive,
while global scrap metal demand provides welcome exposure to
industrial growth abroad. While I continue to view the
prospects of profitability for Asian steelmakers like
POSCO (NYSE: PKX)
far more favorably, AK Steel and Schnitzer Steel vie to
steal the domestic show.
This article was originally published as
A Pair of Moneymaking Metalsmithson
Fool.com
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