AK Steel Sees Improved First Quarter

WEST CHESTER, Ohio (TheStreet) -- AK Steel (AKS) continued to lose money in the fourth quarter of 2010, its second period of red ink in a row, but the loss was narrower than investors were expecting and the stock popped in early trading Monday.

The blast-furnace operator has struggled since last spring with the rising cost of steelmaking raw materials -- iron ore, coking coal and scrap metal -- amid a worldwide surge in commodities prices.

AK Steel's chief executive, James Wainscott, lamented that fact in his prepared statement. "Unfortunately, soaring raw material costs and a stubbornly slow economic recovery -- items outside our control -- overshadowed AK employees' great work," he said. "Nonetheless, AK Steel is poised for the road to recovery in 2011."

For the first quarter, the company's outlook was tempered. It said it expects to break even "at the operating level," with the same dynamics in place as before: higher raw materials costs will be "partially offset by an improved operating performance," AK said.

Still, some investors may have expected a more dire scenario on the raw materials front. In a note to clients Tuesday morning, stock analyst Mark Parr of KeyBanc Capital Markets, wrote that AK's results "could be greeted with a sigh of relief from investors worried about the potential impact of raw material cost increases on earnings."

AK Steel also said shipments for the first quarter will likely reach 1.45 million tons, up 7% from the final period of 2010. It expects the average selling price of its products to rise 8% from the fourth quarter as it continues to pass higher raw materials costs onto its customers. The good news: AK evidently expects demand to be strong enough for its customers to accept those price hikes.

>>Investors Steel Selves for Steel's 2011

Investors bid up the company's shares in early trading Tuesday. The stock was changing hands at $15.12, up nearly 5% on heavy volume.

AK Steel said it lost $98 million, or 89 cents a share in the fourth quarter. Stripping out one-time charges -- about $64 million to account for the shutdown of a coke plant in Kentucky, and $9 million for a retirement settlement for fired workers -- the loss narrowed to $54.5 million, or 49 cents a share.

That number was better than the Wall Street per-share target of a 63-cent loss.

On the top line, revenue came to $1.4 billion, matching analysts' expectations.

A year ago, before the raw materials squeeze came home to roost, AK Steel was firmly in the black, earning 41 cents a share on revenue of $1.32 billion.

Steel was the word on Tuesday as both AK Steel and its blast-furnace big-brother, U.S. Steel ( X), reported fourth-quarter results. U.S. Steel turned in a disappointing quarter, but said business was slowly improving.

On Monday, the electric-arc-furnace Steel Dynamics ( STLD), which uses recycled scrap metal as its primary feedstock, also missed expectations. But a relatively upbeat outlook helped its shares.

-- Written by Scott Eden in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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