AK Steel Holding Corporation (
Q3 2010 Earnings Call Transcript
October 26, 2010 11:00 am ET
Al Ferrara – SVP, Finance and CFO
Jim Wainscott – Chairman, President and CEO
Brett Levy – Jefferies & Co.
Sal Tharani – Goldman Sachs
Michelle Applebaum – Steel Market Intelligence
David Gagliano – Credit Suisse
Michael Gambardella – J.P. Morgan
Luke Folta – Longbow Research
Chuck Bradford – Affiliated Research
Brian Yu – Citi
Mark Liinamaa – Morgan Stanley
Mark Parr – KeyBanc Capital Markets
Timna Tanners – UBS
Dave Katz – J.P. Morgan
Previous Statements by AKS
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Good morning, ladies and gentlemen, and welcome to AK Steel’s third quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded.
With us today are Mr. James L. Wainscott, Chairman, President and Chief Executive Officer of AK Steel; and Mr. Albert E. Ferrara, Jr., Senior Vice President of Finance and Chief Financial Officer.
At this time, I will turn the conference call over to Mr. Ferrara. Please go ahead, sir.
Thank you, Patty, and good morning, everyone. Welcome to AK Steel’s third quarter 2010 conference call and webcast. In a moment, I’ll review our third quarter financial results as well as provide some guidance for the fourth quarter of 2010. Following my remarks, Jim will offer his comments and field your questions.
Our comments today will include certain forward-looking guidance within the meaning of Section 21E of the Securities Exchange Act of 1934. Included among those forward-looking statements will be any comments concerning our expectations as to future shipments, product mix, prices, costs, operating profit and liquidity.
Please note that our actual results may differ materially from what is contained in the forward-looking statements provided during this call. The information concerning factors that could cause such material differences in results is contained in our earnings release issued earlier today.
Except as required by law, the company disclaims any obligation to update any forward-looking statements to reflect future developments or events. To the extent that we refer to material information that includes non-GAAP financial measures, the reconciliation information required by Regulation G is available on the company’s Web site at aksteeel.com.
Earlier today, AK Steel reported a net loss of $59.2 million or $0.54 per share for the third quarter of 2010. Our results were negatively impacted by a significant increase in raw material costs, principally for iron ore, along with costs related to the acceleration of a plant maintenance outage at our Ashland Works blast furnace. We also experienced the modest cost increase associated with an environmental remediation project.
In a moment, I’ll expand on our costs, but first let me make a few comments about our quarterly shipments and selling prices. Shipments for the third quarter of 2010 totaled 1,465,800 tons, an increase of about 16,000 tons compared to the second quarter. This was our fifth consecutive quarter of increased shipments, and it represents our highest quarterly shipment level since the third quarter of 2008.
Our average selling price was $1,075 per ton, which was slightly higher than expected. However, it did represent a decrease of roughly 2% compared to the prior quarter.
Third quarter revenues totaled $1.576 billion, slightly less than revenues for the prior quarter. Sales outside the U.S. remained an important source of revenue for us, totaling approximately $203 million for the quarter.
Due to strengthening of the euro, our third quarter results were positively impacted by a foreign exchange gain of approximately $8 million.
Now, let me return to cost to provide a few more details. In mid-September, we announced that we would take an 11-day maintenance outage at our Ashland Works blast furnace. This outage was previously planned to take place in the first half of 2011, but was advanced due to furnace conditions. The outage was successfully completed and the furnace has returned to normal operation. However, as a result of the outage, we incur higher operating costs during the third quarter.
With respect to iron ore, we have agreed with two of our three primary iron ore suppliers that the annual benchmark price of iron ore for 2010 has been set. That 2010 benchmark is an increase of 98.65% over the 2009 benchmark and is higher than the 65% increase we have previously estimated for the first half and for our third quarter guidance.
Our third primary supplier of iron ore has not yet acknowledged that an annual benchmark price has been established. Instead, that supplier continues to seek a price increase in excess of the 98.65% annual benchmark price.
We do not agree that this supplier has a right under our contract to charge based on other than an annual benchmark price and for purposes the iron ore purchased from this supplier, we have used an estimated benchmark increase of 98.65% in our third quarter financial results.
Our third quarter of 2010 financial results reflect the year-to-date impact of the 98.65% increase in the benchmark iron ore price, which increased our third quarter operating loss by approximately $76 million or $52 per ton.
On an operating basis for the third quarter, we incurred a loss of $102.5 million or $70 per ton. Excluding the effect of the change in the price of iron ore, AK Steel’s operating loss in the third quarter was approximately $26.5 million or $18 per ton, which was slightly better than our revised guidance provided in mid-September.