The increase of automobile production in US and its impact on AK Steel Holding Corporation (NYSEAKS) financial position Essay
The increase of automobile production in US and its impact on AK Steel Holding Corporation (NYSEAKS) financial position, 472 words essay example
On December 17, 2015 AK Steel Holding Corporation (NYSEAKS) announced its fourth quarter 2015 guidance. The company is optimistic to close current quarter in positive manner where it revised its adjusted EPS in $0.04-$0.09 range.
This range apparently beats consensus estimates. As per the records of Bloomberg, the consensus anticipated $0.07 loss per share for fourth quarter 2015. In addition, total adjusted net loss worth $7.89 million is also foreseen.
For the fourth quarter ended 2015, the company expected to ship 1.6 million tons. This shipment is 14% QoQ decline as compared to the third quarter 2015. The lower shipments reflect company's decision to reduce sales to the carbon steel spot market due to the adverse impact on pricing from high levels of imported steel.
For the same period, the steel producer anticipates the sale price to average around $930 per ton. The increase would be primarily due to a greater mix of higher value products sold into the automotive market. In the second quarter 2015, Organisation Internationale des Constructeurs d'Automobiles (OICA) released its automobile production statistics, where it reported 6.1 million automobile productions in US. It is a forecast by Statistica that the automobile production in US will reach 12.92 million within the next two years.
However, this increment will not benefit company's financial position as such, as its average selling price continued to get negative impact by foreign steel excess supply in to US market. Year-to-date, the steel prices are slashed 91% from the high of $1013.38 to $532.68 as at December 18, 2015.
In October 2015, the company issued a 60-day notice under the Worker Adjustment and Retraining Notification (WARN) Act that it intends to idle the blast furnace and related steelmaking operations at Ashland, Kentucky. Due to depressed market conditions, the decision has been taken and could last more than six months. For the same reason, $32 million charges are included in fourth quarter guidance so as to cover idling cost, supplemental unemployment as well as other employee benefit costs. Further, the company estimated on-going costs to be in $2-$3 million monthly range from first quarter 2016 onwards.
During the fourth quarter of 2015, AK Steel expects to receive a distribution of roughly $14 million from AFSG Holdings, Inc. (AFSG), subject to insurance regulatory approval. AFSG has discontinued its insurance operations. AK Steel's remaining investment in AFSG has been determined to be impaired and the company expects to recognize a non-cash charge of approximately $41.0 million as write-off.
The company uses Last in First out (LIFO) system to determine its income. Due to this reason, fourth quarter guidance anticipated $34.0 million income tax expense, in comparison to $17.2 million it paid in the third quarter of 2015.
Latest data revealed that 50 million AK Steel shares were shorted as of December 19. Investors hold a short position on 29.35% of shares under float. This leads to the possibility of the company stock experiencing a short-squeeze if it is able to top estimates, and report updates that would please investors.