AK Steel Holding (AKS)

Q1 2011 Earnings Call

April 26, 2011 11:00 am ET

Executives

James Wainscott - Chairman, Chief Executive Officer, President and Member of Proxy Committee

Albert Ferrara - Chief Financial Officer, Senior Vice President of Finance and Member of Proxy Committee

Analysts

Paul Cheng - Lehman Brothers

Mark Parr - KeyBanc Capital Markets Inc.

Jamie Melzer - BofA Merrill Lynch

Charles Bradford - Bradford Research

Evan Kurtz - Morgan Stanley

John Sullivan - Leerink Swann

David Gagliano - Crédit Suisse AG

Michelle Applebaum - Michelle Applebaum Research

Unknown Analyst -

Brian Yu - Citigroup Inc

Sal Tharani - Goldman Sachs Group Inc.

Michael Gambardella - JP Morgan Chase & Co

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Presentation

Operator

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Good morning, ladies and gentlemen, and welcome to AK Steel's First Quarter 2011 Earnings Conference Call. [Operator Instructions] 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.

Albert Ferrara

Thank you, Marlina, and good morning, everyone. In a moment, I'll review our first quarter 2011 financial results, as well as provide some guidance for the second quarter.

Following my remarks, Jim will offer his comments and field your questions.

Our comments today will include forward-looking statements 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, cost, operating profit or liquidity. Please note that our actual results may differ materially from what is contained in the forward-looking statements provided during this call. Information concerning factors that could cause such material differences and 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 in the company's website at aksteel.com.

Earlier today, AK Steel reported net income of $8.7 million or $0.08 per share for the first quarter of 2011. Our solid first quarter results are better than we had originally forecasted and are $0.09 per share above the first call consensus earnings estimate.

Shipments for the first quarter of 2011 totaled 1,423,100 tons, about 5% higher than our prior quarter. Our average selling price was $1,109 per ton, slightly higher than we anticipated and an increase of approximately 9%, compared to the fourth quarter of 2010.

Revenues totaled $1,580,000,000, an increase of about 14% over the prior quarter. Sales outside the U.S. were once again an important source of revenue for us totaling approximately $218 million or an increase of 15% over the previous quarter.

As we previously announced, our first quarter results includes several one-time items that net to a total charge of $1.5 million. The one-time items include: first, $1.3 million in cost associated with the shutdown of our Ashland Works coke plant; second, a non-cash charge of $14.2 million related to the settlement with the group of our Butler Works retirees; and third, a non-cash credit of $14 million for the final settlement accounting of the Middletown Works, VEBA.

Netting revenues and costs for the first quarter of 2011, we achieved an operating profit of $19.5 million or $14 per ton. That represents a solid improvement in our operating results of more than $174 million, compared to the fourth quarter of 2010.

Turning to the balance sheet. During the first quarter, we made capital investments totaling $36 million. As business conditions and shipments improved, we had an expected increase in working capital of approximately $133 million. We will remain focused on managing working capital throughout the year and anticipate it will be roughly flat for full year 2011.

Let me make a few comments related to our pension plan. During the first quarter, we contributed $30 million to our pension fund. And within the next week, we expect to complete our remaining $140 million pension contribution for 2011.

Looking beyond 2011, our independent actuary has recently updated their estimate of our future pension contribution requirements. As a result, we now expect our 2012 contributions will be about $180 million, substantially lower than previously estimated.

Turning briefly to the VEBA settlement with the group of our Butler Works retirees as previously announced, we will make 3 annual cash payments starting in 2011, which will total $91 million. The first cash contribution of $32 million will be made in the third quarter of 2011. The other payments will be approximately $32 million in 2012 and $27 million in 2013.

Now I'd like to provide some guidance for the second quarter of 2011. Reflecting continued strengthening in most of the markets we serve, we expect second quarter shipments of between 1,500,000 and 1,550,000 tons, a significant increase over our first quarter 2011 shipments. In addition, we expect our average selling price to increase by approximately 7% quarter-over-quarter primarily due to a higher contract of spot market selling prices. We expect higher cost for raw materials including scrap, iron ore and purchase slabs of approximately $50 per ton, compared to the first quarter. We anticipate our maintenance outage cost to increase by roughly $8 million quarter-over-quarter. We expect to incur additional one-time cost of approximately $4 million associated with the shutdown of our Ashland Works coke plant in the second quarter of 2011.

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