AK Steel Holding's CEO Discusses Q1 2012 Results - Earnings Call Transcript

AK Steel Holding (AKS)

Q1 2012 Earnings Call

April 24, 2012 11:00 am ET

Executives

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

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

Analysts

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Brian Yu - Citigroup Inc, Research Division

Brett Levy - Jefferies & Company, Inc., Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

Evan L. Kurtz - Morgan Stanley, Research Division

David Gagliano - Barclays Capital, Research Division

Luke Folta - Jefferies & Company, Inc., Research Division

Charles A. Bradford - Bradford Research, Inc.

Michelle Applebaum - Steel Market Intelligence Inc

Justine Fisher - Goldman Sachs Group Inc., Research Division

Arun S. Viswanathan - Longbow Research LLC

Christopher David Olin - Cleveland Research Company

Timna Tanners - BofA Merrill Lynch, Research Division

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to AK Steel's First Quarter 2012 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 E. Ferrara

Thank you, Amy, and good morning, everyone. In a moment, I'll review our first quarter 2012 financial results. Following my remarks, Jim will offer his comments, and together, we will 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, costs, 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 on the company's website at aksteel.com.

Let me begin by reviewing AK Steel's results for the first quarter of 2012, which we reported earlier today. For the first quarter, AK Steel reported a net loss of $11.8 million or $0.11 per share. This was at the favorable end of our guidance range and represented a significant improvement compared to our adjusted net loss for the fourth quarter of 2011.

Shipments for the first quarter totaled 1,325,900 tons, a decrease of 6% compared to the fourth quarter of 2011, but better than our guidance. Our average selling price per ton for the first quarter was $1,138 per ton, an increase of approximately 6% compared to the fourth quarter, and in line with our guidance.

Revenues for the first quarter totaled $1,509,000,000, virtually the same level of sales as for the prior quarter. Sales outside the U.S. continued to be an important source of revenue for us and they totaled approximately $225 million for the quarter. This represented about 15% of total sales for the first quarter and an increase of 6% compared to the prior quarter. We did benefit from a LIFO credit of $12.4 million in the first quarter. As expected, this credit was substantially less than the LIFO credit of $44.1 million recorded in the fourth quarter of 2011.

On an operating basis, we achieved an operating profit of $4.1 million or $3 per ton for the first quarter of 2012, a substantial improvement over our adjusted operating loss of $32.6 million or $23 per ton for the fourth quarter of 2011.

Turning to the balance sheet. In March, we successfully issued new 10-year senior notes due in 2022. Strong demand from investors allowed us to upsize humanity [ph] offering from $250 million to $300 million. The notes were priced at an attractive long-term interest rate of 8 3/8%. As a result of this transaction, we now expect our interest expense for 2012 to total approximately $80 million.

The completion of this transaction enhances our financial flexibility and is consistent with our stated objective of funding long-term strategic investments with long-term financing. Our senior notes issuance also improves our liquidity, which I will discuss further in just a moment.

In the first quarter of 2012, our capital investments totaled $10.5 million. As expected, working capital consumed $150.7 million of cash during the first quarter as we increased our inventories to support anticipated higher second quarter sales. We also used cash to contribute to our pension fund. In the first quarter of 2012, we contributed approximately $29 million to our pension trust fund. And as we announced this morning, we completed the remainder of our 2012 pension contributions early by contributing approximately $141 million to the pension trust fund in April. That brings our total pension contributions for 2012 to approximately $170 million. I might add that this also brings our total contributions to the pension trust since 2005 to nearly $1.5 billion.

In addition, our liquidity remains solid as we ended the first quarter of 2012, with liquidity of about $883 million.

Finally, looking forward, we expect to provide specific guidance for the second quarter of 2012 in mid-June. As previously announced in March, we expect business conditions to improve compared to the first quarter of 2012, led by increased strength in the automotive market.

Overall, we expect second quarter 2012 shipments to be higher than the first quarter of 2012. We also expect to have improved operating rates in 2012 second quarter, along with lower cost for raw materials as compared to the first quarter. As a result, we expect to generate net income for the second quarter of 2012.

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