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AK Steel Drops Sharply on Steep Declines

(Updated to provide analysts' commentary on the earnings report

WEST CHESTER, Ohio ( TheStreet) -- AK Steel (AKS - Get Report) eked out a profit in the latest quarter, surpassing Wall Street estimates, but a murky outlook and broader concerns about the economic recovery weighed on the company's share price Tuesday.

The stock was moving recently at $17.52, down 6.8%, or $1.27. By late morning, volume had already reached 8.7 million shares, surpassing the daily average turnover in the name.

Compared to last year, every line in AK's report declined substantially: Revenue down 52% to $1.04 billion; profit destroyed by 97% to $6.2 million, or 6 cents a share; shipments off 29% to 1.05 million tons; the average selling price of the company's flat-rolled steel, stainless steel and carbon products down 32% to $994 a ton.

Still, the top and bottom-line results were slightly better than expected. On average, analysts were looking for a profit of 1 cent a share on revenue of $1.01 billion. The company sells its steel, after all, to some of the hardest-hit industries during the recession: construction, automotive, and appliance makers.

Looking ahead, AK said operating profit will come to $30 to $35 a ton. That's up from the $15 per ton it made during the third quarter, but still vastly below the monstrous per-ton profits it was bringing in during the boom years: as much as $210 per ton.

Also, translating that per-ton profit into an EPS figure means 20 cents a share for AK's fourth quarter, according to Morgan Stanley analyst' Mark Liinamma's calculations. That would fall below the consensus Wall Street target of 25 cents a share.

AK said it expects to ship 1.3 million tons of product during the fourth quarter, up 24% from the just-ended period. That might sound promising, but the company quickly added that the average per-ton selling price for those products will decline another 2% compared with the third quarter. The boost in shipments will come mostly from an increase in carbon-product sales, AK said, which are lower priced than steel products.

Further, AK said it expects a $10 million jump in maintenance costs in the fourth quarter, though it also plans to benefit from lower operating and raw materials costs relative to the third period.

Noting that AK Steel has the highest exposure to the auto industry of any steelmaker he covers, Liinamma said in a research note to clients that he believes purchasing by recovering carmakers will keep AK's financial results steady through 2010. He has a price target of $19 on the company's stock.

Also Tuesday, US Steel (X - Get Report) reported a narrower-than-expected loss for its third quarter, though demand remained weak enough that it expects to continue losing money in the fourth period.

Just as with AK, US Steel's outlook appeared to underwhelm investors. The company's shares also fell sharply Tuesday; in late morning action, they were trading at $38.27, down $2.31, or 5.6%.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.

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