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February 2012
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In their fourth-quarter reports to analysts and investors, executives from the major publicly held mills reported strong 2011 results, despite some weakness in the fourth quarter.

AK Steel

Pension Charge Turns Operating Profit into Loss

AK Steel reported a net loss of $193.9 million during the company’s fourth quarter, leading to a loss for the full year. The West Chester, Ohio, steelmaker posted a net loss of $155.6 million for 2011, following a net loss of $133.9 million in 2010.

The loss was entirely attributable to a noncash, pretax pension corridor charge of $268.1 million, however, said company officials. Excluding this amount, the company’s adjusted net income for 2011 was $10.3 million.

AK Steel’s sales for 2011 totaled $6.5 billion, an increase of 8 percent compared to $6.0 billion for 2010. Shipments for 2011 totaled 5.7 million tons, a slight increase from 2010.

“The combined effects of lower production and lower selling prices nearly eroded profitability from the prior three quarters,” said James L. Wainscott, chairman, president and CEO of AK Steel during the company’s conference call with investors and analysts. “But for the first time since 2008, we generated adjusted net income, before taking into account the pension corridor charge.”

Net sales for fourth-quarter 2011 totaled $1.5 billion on shipments of 1,409,900 tons, compared to sales of nearly $1.4 billion on shipments of 1,359,900 tons for the previous year’s fourth quarter. The company’s average steel selling price in the fourth quarter was $1,070 per ton, 5 percent higher than last year’s fourth quarter, but an 8 percent decrease from the $1,158 per ton in third-quarter 2011.

“The economic recovery we’ve been anticipating for several years simply did not fully materialize in 2011, and we endured another round of raw material price increases,” said Wainscott. “However, we made significant strides towards becoming more self-sufficient in raw materials—moves that will greatly improve our cost structure in the future.”

In October, AK formed a joint venture with an existing company to produce iron ore concentrate, and, in a separate transaction, acquired stock in a company with significant reserves of met coal.

Alcoa

Curtailments, Lower Prices Lead to Quarterly Loss for Alcoa

Alcoa reported a loss from continuing operations of $193 million in the fourth quarter, the byproduct of charges related to the closure and curtailment of high-cost production capacity, lower aluminum prices and continued market weakness. The fourth quarter loss compares to income from continuing operations of $172 million in third quarter-2011, and income of $258 million in the fourth quarter of 2010.

Still, for the full year, Alcoa reported income from continuing operations of $614 million, more than double 2010 results.

Revenue in the fourth quarter of 2011 was $6 billion, down 7 percent from the $6.4 billion reported in the third quarter, but up 6 percent over fourth-quarter 2010 revenue of $5.7 billion.

Income in the Flat-Rolled Products segment was down 57 percent to $26 million during the quarter, compared to the previous quarter. The declining performance was driven by seasonal volume declines in North America and Russia and continued weakness in the European market. Performance was also unfavorably impacted by credit losses for several customers.

“We stayed focused on growth and took aggressive action to cut costs, improve our competitiveness, and strengthen our balance sheet,” said Alcoa Chairman and CEO Klaus Kleinfeld during the company’s year-end conference call with investors and analysts. “For 2012, we expect global aluminum demand to grow 7 percent and are forecasting a global deficit in primary aluminum supply.”

Alcoa’s growth projection is ahead of the 6.5 percent rate required to meet the company’s forecast of a doubling in global aluminum demand between 2010 and 2020. Aluminum demand grew 10 percent in 2011 on top of 13 percent growth in 2010. In 2012, Alcoa projects global growth of 10-11 percent in aerospace, 3-8 percent growth in automotive, 2-5 percent in commercial transportation, 2-3 percent in packaging and 4-5 percent in construction.

Alcoa also projects that growing demand for aluminum, combined with market-related production cutbacks, will result in a global aluminum industry deficit of 600,000 metric tons in 2012. Those factors, among others, lead Alcoa officials to believe pricing for primary aluminum will be stronger this year.

Carpenter Technology

Carpenter Improves Sales on Lower Volumes

Carpenter Technology Corp. reported net income of $23.6 million during its second quarter ended Dec. 31, more than double the $9.3 million during the same period in 2010. Costs in the quarter related to the Latrobe Specialty Metals transaction were $2.4 million.

“Our solid second-quarter results reflect continued execution of our strategy to optimize the core business by growing premium product volume and improving our overall profit per pound through pricing and mix management actions,” said William A. Wulfsohn, president and CEO of the Wyomissing, Pa.-based specialty metals company.

Net sales for the second quarter were $431.1 million, up 15 percent from the prior year. Total pounds sold were 7 percent lower than in last year’s second quarter based on deliberate actions to grow premium products and strengthen overall mix. Titanium products increased 17 percent, powder metal products were up 15 percent and special alloy products increased 1 percent, while stainless steel and other alloys decreased 12 percent.

Revenues increased 12 percent on 4 percent higher volume for the company’s premium products, including special alloys, titanium and powder metals. Revenues for its stainless products increased 31 percent on 12 percent lower volume.

“Our success in driving more premium volume through our limited capacity, and actions to improve our product mix, enabled us to more than double our profit per pound from a year ago,” Wulfsohn said. “With end-market demand remaining strong, and our sizable backlog, including in Europe, we remain on track to achieve our fiscal year financial target of a 50 percent increase in operating income.”

The Latrobe acquisition is on track to close by the end of the fiscal third quarter, added company officials.

Nucor

Nucor’s Sales, Income Up Significantly in 2011

Nucor Corp., Charlotte, N.C., reported full-year 2011 earnings of $778.2 million, a big leap from the $134.1 million income posted the previous year. Net sales for the year jumped 26.2 percent to $20.02 billion.

The steelmaker’s fourth-quarter performance was consistent with the increase. Nucor reported net earnings of $137.1 million in the quarter, compared to a loss of $11.4 million during the same period the previous year.

Net sales during the quarter grew 25 percent to $4.83 billion. That was still 8 percent below the company’s sales during the third quarter.

The quarter’s average selling price per ton decreased 6 percent vs. the third quarter, but was up 18 percent compared to fourth-quarter 2010. Tons shipped to outside customers totaled 5.7 million in the fourth quarter, down 2 percent from the third quarter but up 7 percent over 2010.

For the full year, the average sales price per ton increased 21 percent vs. 2010. Tons shipped to outside customers totaled 23,044,000 tons, an increase of 5 percent over 2010 levels.

Overall operating rates at the company’s steel mills hit 74 percent for the full year, increasing from 70 percent in 2010 and 54 percent in 2009. Construction continues on the company’s 2.5-million-ton direct reduced iron facility in Louisiana. The majority of the equipment will begin arriving in 2012. The project is on schedule for start-up in mid-2013, said Nucor officials.

Steel Dynamics

SDI’s Full-Year Income Up Almost 100 Percent

Steel Dynamics’ full-year income in 2011 increased nearly 100 percent from the preceding year. The Fort Wayne, Ind.-based steelmaker reported net income of $278 million, compared to $141 million in 2010.

SDI’s net sales also were up in 2011, though not as dramatically. Net sales jumped $1.7 billion to $8.0 billion for the year.

For the fourth quarter, SDI’s net income totaled $30 million, well ahead of the $8 million recorded during the same quarter in 2010. Net sales of $1.9 billion were up 26.7 percent from the previous year’s fourth quarter.

“We are pleased with the strong revenue and bottom-line performance in both the quarter and for the year in comparison to prior-year results,” said President and CEO Mark Millett during the company’s conference call with investors and analysts. “We achieved both quarterly and annual organic sales growth of over 20 percent and nearly doubled our annual pretax earnings in a challenging environment.”

Fourth-quarter volumes increased in each of the company’s operating segments when compared to the prior-year fourth quarter, but decreased when compared to the third quarter of 2011. While the company’s operating income increased 76 percent over prior-year performance, it decreased 24 percent in comparison to the third quarter of 2011.

The decrease in quarterly operating income was primarily the result of compressed flat-rolled margins and Iron Dynamics’ planned three-week maintenance shutdown, which reduced operating income by $10 million due to associated costs and reduced volume. Despite increased volumes, earnings from flat-rolled operations declined 26 percent, as lower selling prices in the first half of the quarter were not matched with corresponding declines in the cost of raw materials, resulting in margin compression. However, beginning mid-quarter, increases in both order entry and pricing should benefit the first quarter of 2012, officials said.

Fourth-quarter margins for the combined steel operations expanded in comparison to prior-year fourth-quarter results, as the average selling price per ton shipped increased $100 per ton to $853, and the average ferrous scrap cost per ton melted increased $68. In contrast, steel margins compressed in comparison to the third quarter of 2011, as the average selling price per ton shipped decreased $44 per ton across the steel group, and the average ferrous scrap cost per ton melted decreased only $12.

SDI reported a number of milestones in 2011. Its Flat-Roll and Engineered Bar Products segments reported record annual production and shipping volume figures, as well as steel operations in total. Engineered Bar Products and Steel of West Virginia divisions reported record annual operating income.

Looking to the year ahead, Millett said the company is optimistic for further growth in most steel end markets. “We believe there is the possibility for more stability to develop in 2012 as improvements continue in certain market sectors, such as energy, agriculture, automotive, transportation and construction equipment,” Millett said. “If the U.S. economy continues a pattern of slow and steady growth during the year, steel demand should logically follow, given the relatively low levels of inventory across the supply chain.”

Timken

Record Sales in Fourth Quarter

The Timken Company, Canton, Ohio, reported record sales of $5.2 billion for 2011, up 28 percent from the prior year on strong demand from diverse industrial markets. The increase primarily reflects growth from the energy, heavy truck, mining, rail and industrial distribution sectors, as well as favorable pricing, material surcharges and acquisitions.

In 2011, the company generated $454.3 million in income from continuing operations, up 65 percent from $274.8 million a year ago. Higher volume, favorable mix, surcharges and pricing drove the improvement, more than offsetting increased raw material and administrative costs.

"Our financial results tell the story of a transformed Timken Company," said James W. Griffith, Timken president and CEO. "We've successfully repositioned the company, focusing our efforts on those industries and applications where we bring significant value and can make a difference in our customers' performance. As a result of this and our improved operating model, we have increased our earning power, serving Timken customers across a multitude of high-performance applications in industrial markets."

For the fourth quarter, Timken reported sales of $1.3 billion, an increase of 18 percent from the same period in 2010. Income during the quarter totaled $108.3 million, up 19.5 percent from the same quarter in the prior year.

Sales for steel, including inter-segment sales, totaled $2 billion in 2011, an increase of 44 percent from $1.4 billion in 2010. Demand from the energy and industrial sectors drove the improvement, as well as favorable pricing and an increase in raw-material surcharges of approximately $210 million.

U.S. Steel

Flat-Rolled, European Segments Lead to Fourth-Quarter Loss

United States Steel Corp., Pittsburgh, reported a fourth-quarter 2011 net loss of $226 million, a slight improvement compared to the fourth quarter of 2010 but a reversal from the $22 million net income in the prior quarter. The fourth-quarter performance led to a loss for the full year of $68 million. That was a major improvement from the $482 million net loss posted in 2010.

Net sales for the quarter totaled $4.8 billion, down slightly from the third quarter, but up 12.1 percent from the same quarter in 2010. Net sales for the year totaled $19.9 billion, a 14.4 percent improvement from the previous year.

The company’s flat-rolled segment reported a loss from operations of $24 per ton, compared to $53 per ton income in the third quarter. The decrease was driven largely by lower average realized prices and shipments created by the uncertain economic outlook and increased domestic supply, which perpetuated cautious purchasing patterns early in the quarter, officials said.

Fourth-quarter prices decreased by $32 to $741 per ton, reflecting lower average realized prices on spot market business and index-based contracts. Additionally, the company performed maintenance outages at several facilities, which resulted in increased costs of approximately $50 million compared to the third quarter.

Tubular fourth-quarter 2011 results were in line with the third quarter as average realized prices increased to $1,711 per ton and shipments of 482,000 tons were comparable to the third quarter. Fourth-quarter results reflect the continued strong demand for energy-related tubular products.

"Our operating results for the fourth quarter included another solid performance by our Tubular segment, reflecting the continued strength of oil-directed drilling. Our Flat-rolled segment incurred a loss from operations due to soft steel market conditions during most of the quarter, increased costs related to planned maintenance outages and accounting losses on transactions to sell excess iron ore pellets,” said John Surma, chairman and CEO. “U.S. Steel Europe results continue to reflect the difficult economic situation in the region."

At the end of January, U.S. Steel sold U.S. Steel Serbia to the Republic of Serbia for a nominal purchase price. U.S. Steel Kosice will receive payment of certain intercompany balances owed by U.S. Steel Serbia for raw materials and support services, subject to adjustment.

"Our efforts to improve the operation's cost structure and shift our commercial focus towards more value-added products have been unable to offset the particularly difficult economic conditions in Southern Europe. As mentioned last quarter, in response to sustained operating losses at our Serbian operations, we have been pursuing all options to improve our situation there. The option that proved to be in the best interest of our shareholders is this sale to the Republic of Serbia," said Surma.

The sale will allow U.S. Steel to exit the operations quickly and avoid further losses in Serbia, he said. The company’s losses there were in excess of $200 million in 2011.
 
"We expect to report a significant improvement in our operating results in the first quarter as compared to the fourth quarter, mainly driven by improved average realized prices and shipments for our Flat-Rolled segment. Our Tubular operations are expected to have another strong performance as operating results are expected to be in line with the fourth quarter,” Surma said. “We expect our European segment results to reflect the effects of the continued difficult economic environment across Europe."


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Wednesday, December 17, 2014