AK Steel Corp. by the numbers
$1 billion net loss in 2012, compared to $155.6 million net loss in 2011
$64.4 million 2012 adjusted net loss, excluding pre-tax pension and tax asset charges
$5.93 billion total 2012 sales, compared to $6.47 billion 2011 sales
$1.1 billion liquidity at end of 2012
$4.03 closing stock price Tuesday, Jan. 29
AK Steel’s Middletown Works plant, which mainly makes carbon steel for the automotive market, was a bright spot for the company during a year when it reported a net loss of $1 billion.
The West Chester Twp.-based steelmaker’s auto business increased last year by about 20 percent, the company said. That may be one reason that Middletown Works didn’t experience the temporary layoffs that other AK Steel plants did in 2012 when steel demand was down overall.
“We’re chugging along. We don’t have any layoffs. They actually hired 15 people,” to fill positions for turnover, said Neil Douglas, president of the union representing the mill’s hourly workers.
As Middletown’s largest employer, the success of AK Steel and Middletown Works is closely tied to the city’s fortunes. Between the company’s headquarters in West Chester Twp. and the Middletown steel plant, AK Steel directly carries approximately 2,400 full-time jobs in Butler County.
AK officials say they expect a strong rebound in 2013, but four consecutive years of net losses has some residents and area businesses that depend on the steelmaker closely watching the company’s performance. Many remember and some are still recovering from the effects of AK Steel’s yearlong lockout at Middletown Works that began in 2006, which sent Middletown into hard economic times before the Great Recession.
“We are under the assumption they are going to be there. They’re going to have hiccups here and there with these issues,” said Andy Schuster, president of Hamilton steel processor Matandy Steel and Metal Products, which counts AK among its vendors. “We’re not alarmed.”
Slow economic growth and tough competition brought AK Steel’s sales last year down to below $6 billion, the company reported Tuesday. Financial results for the full year ended with a $1 billion net loss.
Excluding a pre-tax pension-related charge and noncash income tax charges, AK Steel had an adjusted net loss of $64.4 million in 2012.
Last year’s loss “is a big issue for the company and this is something that isn’t new,” said Bridget Freas, an equity analyst for Chicago investment research firm Morningstar Inc.
AK Steel has had a hard time being consistently profitable going back into 2008 and has taken on a lot of debt, Freas said. She stressed there is not a risk of bankruptcy, a cash flow problem or problems with customers and suppliers.
“I would say when you take on this much debt it makes it really difficult to invest in the company,” she said. “Their earnings will grow as the economy strengthens, but I don’t know if they have the same abilities as some of their peers do because of their constrained balance sheet.”
The good news for Middletown is that the steel plant Middletown Works mainly makes carbon steels for the automotive market, a bright spot in AK Steel’s business.
The company’s 20 percent increase in auto business “was higher than the overall auto market’s growth in 2012,” James Wainscott, AK Steel chief executive officer, told investors on a conference call about the company’s earnings Tuesday.
“In other words, we gained market share last year, and we expect more of the same for 2013,” Wainscott said.
Steel produced by AK Steel’s seven steel plants ends up in automobiles, construction products and appliances, many big ticket items that depend on consumers making more money to buy more cars, refrigerators and washers. Light vehicle sales and new construction are improving in the U.S., but the activity is still below pre-2008 recessionary levels, AK Steel officials said.
“Sluggish economic conditions impacted global demand and selling prices for steel products during the fourth quarter and the full-year of 2012,” said Wainscott, chairman, president and chief executive officer of AK Steel, in a statement. “That said, AK Steel remains well-positioned to take advantage of market opportunities with its high quality, valued-added steels as the economy continues to slowly recover. Taking everything into account, we expect a significantly better first quarter and full-year 2013.”
Because steel demand lacked last year, AK Steel did some temporary layoffs, said company spokesman Barry Racey. He didn’t specify which plants this happened at.
“We constantly have to match operations to customer demand for products,” Racey said.
At Middletown Works, some employees had reduced hours for short periods at a time, but no layoffs, Douglas said. There’s a watch on overtime to keep it at a minimum.
“Everybody knows in the mill money’s tight,” Douglas said. “If they can save on something, they’ll do it.”
Not only does AK Steel need stronger economic growth, it is challenged by excess steelmaking capacity and increased steel imports.
“It’s a relatively weak demand environment in the U.S. and that’s being compounded by continuing levels of high imports and excess capacity,” said Mark Parr, managing director and equity research analyst with KeyBanc Capital Markets Inc., who covers steel markets. The “construction market is one area of the economy that hasn’t really picked up yet and that’s the biggest end user of steel.”
Wainscott expects 2013 to be better because the steelmaker will benefit from lower raw material and energy costs to a tune of more than $150 million in savings. Coal supply requirements have been locked in for 2013 at lower prices than 2012. He told investors he sees demand improving this year, especially in the auto sector.
AK Steel also intends to reduce cost of operations this year by at least $25 million. Racey said cost cutting efforts include strategic purchasing initiatives.
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