AK Steel Corp. said that it expects to report net income for the second quarter of 2004, excluding an anticipated gain on the sale of the company's Houston, Texas, industrial park, which was completed on April 12, 2004.
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What a Difference a Year Makes…
AK Steel reports that its operating income has improved by approximately $117 per ton since the third quarter of 2003 — when executive management changes were made — equating to approximately $700 million annualized, based on 6 million tons of shipments.
In the third quarter of 2003, the company reported an operating loss of $225 million (including a $101.2 million goodwill impairment charge) on shipments of 1,502,700 million tons, resulting in an operating loss of $82 per ton.
The company said its expected second quarter 2004 operating income of approximately $55 million on shipments of 1,565,000 tons would equate to an operating profit of approximately $35 per ton.
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AK Steel said it expects to record an operating profit of approximately $55 million, compared to $1 million in the first quarter of 2004. In contrast, the most recent consensus earnings estimate among analysts surveyed by First Call was a net loss of $0.10 per share.
"We are obviously pleased with the progress we have made over the past nine months in restoring AK Steel to profitability," said James L. Wainscott, President and CEO. "While we established several new production and shipping records in the quarter, we are most happy to have broken a string of eight consecutive quarterly losses, which is a tribute to the efforts of every AK Steel employee. We are now focused on overcoming our remaining significant challenges to ensure our competitiveness on every front and sustain our profitability."
Regarding the competitiveness of AK Steel's labor costs, Mr. Wainscott stated that the company was making measurable progress. "In the last six months we have negotiated progressive new labor agreements with the unions that represent our Mansfield and Coshocton plants in Ohio, and our Rockport plant in Indiana. These new agreements allow for a smaller and more flexible hourly workforce, consistent with, or better than, other recently negotiated contracts in the steel industry," Mr. Wainscott said.
The company also said that an arbitrator ruled on July 1, 2004 that it could continue its suspension, until at least May 2005, of a provision in its contract with its largest hourly union, the independent AEIF in Middletown, Ohio, that calls for a minimum base workforce. Further, the ruling allows the company to continue reducing the Middletown hourly workforce by attrition and through layoff of employees with less than two years of seniority. AK Steel said it has already reduced the Middletown hourly workforce by about 125 employees, or 4%, since January, and would continue to reduce the Middletown hourly workforce through layoffs and attrition.
"We remain open to working with all of the unions that represent our employees, including the AEIF in Middletown, in order to achieve permanent competitiveness in labor costs," said Mr. Wainscott.
AK Steel said its better than expected second quarter results were driven by stronger than expected shipments, improved spot market pricing, including alloy and scrap surcharges, and continued operating and administrative cost reductions, which have enabled the company to overcome a portion of the impact of higher raw material and energy prices.
AK Steel said it expects continued improvements in its operating profitability for the third quarter and second half of 2004, due primarily to fewer planned maintenance outages and continued cost reduction efforts.