Declining Sales Cut Into Producer Profits
North America’s mills experienced sales declines in most end markets in the first quarter, though many hope demand gets stronger as the year goes on, according to recent quarterly reports by leading publicly held companies.
AK Cuts Losses in First Quarter
West Chester, Ohio-based AK Steel reported a net loss of $9.9 million for the first quarter, a slight improvement from the $11.8 million loss posted during the same quarter of 2012. It was a significant improvement from the $36.6 million loss in the previous quarter for the steelmaker.
AK’s net sales for the first quarter of 2013 totaled $1.4 billion, down 9.2 percent from first-quarter 2012. The company shipped 1.3 million tons during the quarter, 2.7 percent less than the same period last year. Compared to the previous quarter, sales were off 3.7 percent and shipments were down 8.2 percent.
The decreases in the first quarter of 2013, compared to both prior periods, were primarily due to lower shipments to the carbon spot market, partially offset by increased shipments to the automotive market.
“AK Steel’s results reflect significant progress for the company during the first quarter,” James L. Wainscott, chairman, president and CEO told investors and analysts during the company’s quarterly conference call. “We experienced increased shipments to the automotive market, a higher-priced product mix, and lower costs, primarily for raw materials.”
The average selling price for the first quarter was $1,062 per ton, a 7 percent decrease from the first quarter of 2012, but 5 percent better than the fourth quarter, primarily due to a higher value-added product mix and higher carbon spot market prices.
Sales to the automotive market, which represented 45 percent of AK Steel’s sales in 2012, continued to lead the way. In the first quarter, AK enjoyed its highest level of shipments to auto customers since the first quarter of 2008.
“While the automotive market was a bright spot for our business, markets remained challenging for some products, particularly those in the spot market. Simply put, global steelmaking capacity continues to exceed demand. Additionally, the cyclical improvement in spot market pricing we normally see during the first quarter did not materialize and is expected to occur later this year,” Wainscott said.
AK Steel announced plans for a seven-day maintenance outage at its Middletown blast furnace in the second quarter, the first major outage at the furnace since its reline in 2009. Total maintenance outage costs are expected to be about $21 million. “This was an outage we were likely going to take in the third quarter. We advanced it to the second. It so happens that market conditions aren’t wonderful right now, so it made sense. Upon completion, we will be well-positioned to meet the needs of our customers in anticipation of slowly improving market conditions,” Wainscott said.
Alcoa Reports Profitable First Quarter 2013
New York-based aluminum giant Alcoa reported net income of $149 million during the company’s first quarter, a 62.0 percent increase from the same quarter in 2012, but down 62.4 percent from the previous quarter.
First-quarter 2013 revenue totaled $5.8 billion, a decrease of 1.0 percent from fourth-quarter 2012 due to fewer production days in the first quarter. The revenue figure is also 3.0 percent less than in the first quarter last year, largely on lower London Metal Exchange aluminum prices and the impact of curtailments in Alcoa’s European primary metals production.
“This was a strong quarter led by record profitability in our downstream business, improved results in our midstream business, and remarkable upstream performance in the face of weak metal prices,” said Klaus Kleinfeld, Alcoa chairman and CEO, during the company’s quarterly call with investors and analysts. “We achieved these results by focusing on the things we can control and by pressing Alcoa’s innovation edge, scale and strength in end markets.”
Kleinfeld said the company’s performance has been driven by a dramatic change in Alcoa’s product mix. In 2003, 75 percent of its operating income was delivered by its Global Primary Products business. In 2012, only 29 percent of its income was generated by primary products, while the remaining 71 percent was provided by its value-added Global Rolled Products and Engineered Products segments.
After-tax operating income in the Global Rolled Products segment totaled $81 million during the quarter, up from $77 million in the fourth quarter, but down from the $102 million in the same quarter of last year. Sequentially, favorable productivity and strong demand from the aerospace and automotive markets were mostly offset by weaker pricing and higher costs.
First-quarter operating income in the Engineered Products and Solutions segment totaled $173 million, up from $140 million in the previous quarter, a 24 percent improvement, and up from $157 million during the same quarter of 2012. Favorable productivity and higher volumes in the aerospace businesses drove the record profitability for the segment. The company continues to benefit from share gain increases in all markets due to its innovation, officials claim.
Alcoa continues to project 7 percent global aluminum demand growth in 2013, and balanced alumina and aluminum markets. The company projects global growth this year in aerospace of 9-10 percent; automotive, 1-4 percent; commercial transportation, 2-7 percent; packaging, 2-3 percent; building and construction, 4-5 percent; and industrial gas turbine, 3-5 percent.
ATI’s Income Tumbles During First Quarter
Allegheny Technologies Inc., Pittsburgh, reported net income of $10.0 million during the first quarter, down substantially from the $56.2 million posted during first-quarter 2012. ATI’s net sales of $1.18 billion were off 12.5 percent from the same period last year.
“We saw continued sluggish demand from many of our major end markets during the first quarter,” said Rich Harshman, chairman, president and CEO of the specialty metals producer.
Titanium shipments improved to 10.3 million pounds, an increase of over 15 percent compared to the fourth quarter of 2012. Sales of precision forgings and castings represented over 12 percent of first-quarter sales and were at the same level as the previous quarter. Sales of Precision Rolled Strip products and engineered strip products increased by more than 7 percent compared to the fourth quarter and represented over 11 percent of first-quarter sales, benefitting from solid demand from the automotive market.
Demand was weak for zirconium and related alloys and grain-oriented electrical steel from the nuclear energy and chemical process industries, and electrical power generation markets. As a result, first-quarter sales of these products declined by 23 percent compared to the fourth quarter of 2012.
“While demand from aerospace OEMs in support of new builds improved, compared to the fourth quarter, demand from the jet engine aftermarket remained low. The markets for flat-rolled stainless sheet and plate and grain-oriented electrical steel remained challenging due to lackluster demand, low base-selling prices and high levels of imports. Demand for forgings from the construction and mining equipment markets was depressed as OEMs adjusted production and reduced inventories to match current global demand,” Harshman said.
Flat-Rolled Products segment operating profit totaled $2.4 million, or 0.4 percent of sales, reflecting a weaker high-value product mix as well as record-low base-selling prices for standard stainless sheet. Operating profit in the company’s Engineered Products segment was essentially break-even, as lower operating rates affected profit margins.
Construction on the company’s Flat-Rolled Products and Hot-Rolling and Processing Facility continued on schedule and on budget. The HRPF is expected to be production-ready by the end of 2013, with the commissioning in the first half of 2014.
“We believe this approximately $1.2 billion strategic investment transforms our flat-rolled products business. It is designed to significantly expand our product offering capabilities, shorten manufacturing cycle times, reduce inventory requirements, and improve the cost structure of our flat-rolled products business,” Harshman said.
Looking ahead, ATI expects the second quarter to improve modestly. “While we see some signs of improvement as we enter the second quarter, and it appears the fourth quarter may have been the trough in demand, we expect challenging conditions to continue to impact many of our end markets throughout the second quarter. We believe our customers will continue to remain cautious as near-term global economic uncertainties remain, lead times remain short, and raw materials prices, especially for nickel and titanium scrap, remain under pressure,” Harshman said.
Carpenter’s Quarterly Income Nearly Flat with 2012
Carpenter Technology Corp., Wyomissing, Pa., reported net income of $32.9 million for its third quarter, which ended March 31. Net income was nearly flat with last year’s $33.0 million in earnings.
Carpenter had net sales of $581.4 million during the quarter, up 7.6 percent from the same period last year.
"Our third quarter had gains and challenges," said William A. Wulfsohn, president and chief executive officer. "We achieved solid growth in our aerospace and energy markets. However, increased customer deferrals during the quarter, combined with low sales to distribution customers and a weak defense related mix, resulted in lower sales and operating income.”
Through the first three quarters of its fiscal year, Carpenter reported net earnings of $105.1 million, a 30.9 percent improvement over the same period of 2012. Net sales were up 19.8 percent to $1.7 billion.
“While the recent pattern of deferrals has slowed and order intake has increased, we now expect our full-year earnings to be lower than previously forecasted,” Wulfsohn said. “We are still targeting low double-digit growth in full-year operating income. However, if Q4 has similar in-quarter mix and deferrals as we experienced in Q3, we may have difficulty achieving this target.”
Carpenter has completed the integration of Latrobe Specialty Metals, which contributed $12.9 million of operating income during the quarter. The earnings and synergies realized from the acquisition are above what was anticipated.
"With our recent capital investments and operations improvement initiatives, we now have the available capacity to realize near-term growth as demand recovers. This added volume should help to improve our operating margins as we benefit from volume leverage over existing assets. Finally, starting in the second half of fiscal year 2014, the Athens facility will add critical hot-working capacity for premium products, which is currently a constraint, to enable longer term profitable growth,” Wulfsohn said.
Century Reports Flat Sales
Century Aluminum Co., Monterey, Calif., reported net income of $8.3 million for the first quarter of 2013, up from a net loss of $4.4 million in first-quarter 2012. Sales for the first quarter totaled $321.3 million, down slightly from last year’s first quarter. Shipments of primary aluminum in this year’s first quarter totaled 158,776 metric tons, about the same as a year ago.
"Market volatility has increased due to a number of factors," said Michael Bless, president and chief executive officer. "Economic data from China have been mixed, with underlying industrial and consumer activity growing at a reasonable, but slower pace. Growth in other developing economies has also slowed and conditions in the Eurozone remain difficult. In the U.S., end markets remain generally strong.
Overall, we continue to expect medium and longer-term global trends to be favorable, and are thus executing our strategic plans. We are, however, working to preserve considerable flexibility in the present uncertain environment."
Century continues to negotiate rates with the electricity provider for its Hawesville plant after its existing contract expires in August. “We remain optimistic that a solution exists that would support the plant's continued operation,” Bless said.
Century is pushing forward with other key initiatives, he added, including the restart of the Ravenswood plant and expansions in Europe.
Kaiser Income Climbs Despite Headwinds
Kaiser Aluminum Corp., Foothill Ranch, Calif., reported net income of $34 million during its first quarter, a 25.9 percent improvement over the first three months of 2012. Net sales increased 7.3 percent to $337 million.
"We previously anticipated first-half 2013 value-added revenue and adjusted EBITDA margin would be comparable or slightly better than the first half of 2012, and our first-quarter results reflect that pace," said Jack A. Hockema, president, CEO and chairman.
Value-added revenue of $187 million for the first quarter declined from $195 million in the prior-year first quarter reflecting mild headwinds. Demand was weaker in the quarter driven by modest inventory overhang in the aerospace supply chain, relatively flat automotive build rates and weak supply chain demand for the company's general industrial applications.
Kaiser has announced additional investments beyond the $35 million previously committed to the new casting unit at Trentwood. Additional capital projects, totaling approximately $60 million, will further expand heat-treat plate capacity, support new automotive programs that launch over the new few years, and enhance operational efficiency and flexibility, officials said.
“We anticipate continuing demand headwinds across our end market applications during the second quarter in addition to higher planned capital and project expenses. However, we anticipate value-added revenue and adjusted EBITDA margins will be comparable to the strong levels we reported in the first half 2012,” Hockema said.
Nucor’s Earnings, Sales Down in First Quarter
Nucor Corp. reported net earnings of $84.8 million during its first quarter, down substantially from both the prior quarter and last year’s first quarter. The Charlotte, N.C.-based minimill reported net earnings of $136.9 million in the fourth quarter and $145.1 million during first-quarter 2012.
Nucor's consolidated net sales decreased 10 percent to $4.55 billion in the first quarter compared to the same quarter last year, though that was an improvement of 2 percent from the previous quarter.
Nucor’s average sales price per ton was down 7 percent compared to first-quarter 2012, and down 2 percent from the fourth quarter. Shipments to outside customers totaled 5.7 million tons in the quarter, a 4 percent decrease from the first quarter of 2012, but a 4 percent increase over the fourth quarter.
Overall operating rates at Nucor’s steel mills decreased to 72 percent in the first quarter from 79 percent in last year’s first quarter, though they were up slightly from the fourth quarter.
Metal margins at the company’s steel mills for the first quarter remained flat. Overall, the mills have not experienced the seasonal improvement in volume and pricing that is typical in the first quarter of the year, officials said. The downstream steel products segment experienced a seasonal slowdown in the first quarter, as expected, and that segment reported a modest loss following three straight quarters of profitable operating performance.
“We’re five years into what remains a depressed and stagnant global economic environment. Against this backdrop, steel market fundamentals remain very challenged. Utilization rates remain mired in the 70 percent range, at the same time imports have surged,” said President and CEO John Ferriola.
Still, Nucor officials expect improvement in earnings in the second quarter, driven by better performance at the company’s fabricated construction products businesses, raw materials businesses and most steel mill product groups, partially offset by weaker performance in sheet steel.
“We continue to be cautiously optimistic about nonresidential construction, as it slowly improves from very depressed levels. The McGraw Hill Construction survey predicts square footage growth of 8 percent in 2013 versus 2012, though that’s still less than half its 2007 peak,” said Jim Frias, Nucor’s chief financial officer.
Construction continued on Nucor’s 2.5-million-ton DRI facility in Louisiana, but as a result of extreme weather conditions in the first quarter, the company now expects to start up late in the third quarter of 2013. Officials are confident the ramp-up to full capacity will occur quickly.
Nucor is keeping its eye on the newly planned sheet mill in Arkansas. Ferriola said the company isn’t worried about the competition in the region, even though he believes the market does not need the additional capacity. The state legislature recently approved $125 million in incentives to Big River Steel for the construction of a sheet mill in northeastern Arkansas.
“As I think back to the last mill that came online in the United States, I remember hearing things about how Nucor would be most negatively impacted by that new operation because it was located in the South, close to our mills,” Ferriola said of ThyssenKrupp’s Alabama facility, now on the auction block. “All I want to say is, you can see how all of that worked out. If the new competitor continues to move forward, we'll do the same thing.”
SDI’s First-Quarter Earnings Increase 4.3% Over 2012
Steel Dynamics Inc., Fort Wayne, Ind., reported net income of $48 million during its first quarter, a 4.3 percent improvement from the first quarter of 2012, but down 21.3 percent from the prior quarter. Net sales totaled $1.8 billion, down 10 percent from first-quarter 2012, but up 5.9 percent from the fourth quarter.
"The first quarter remained challenging from a market perspective, as customer confidence and buying patterns continued to be impacted by global economic uncertainty. But the team did a great job," President and CEO Mark Millett said at the company’s quarterly conference call. “The domestic economy continues to experience constrained growth. GDP remains weaker than we need to see, and sequestration and high unemployment is sapping consumer confidence.”
SDI’s operating income improved slightly to $96 million compared to last quarter's results. Compared to the fourth quarter, operating income from steel operations improved 4 percent to $122 million, as increased long product volumes more than offset weaker sheet steel shipments and somewhat lower overall metal spreads, officials reported.
“An oversupplied northeastern U.S. galvanized sheet market pressured first-quarter shipments from The Techs. However, increased shipments of wide flange beams, rail and engineered bar products more than offset the decrease. Despite the slow growth of the commercial construction market, we have seen increased wide flange beam shipments for several consecutive quarters, albeit still very low in relative historical terms, and our fabrication business continues to be profitable,” Millett said.
Operating income from the metals recycling operation was down 3 percent to $25 million compared to the fourth quarter, as increased volumes were not enough to offset decreased ferrous and nonferrous margins.
First-quarter shipments were higher across the company's operating segments when compared both to the prior quarter and the same quarter in 2012. The company's steel mill utilization rate improved to 89 percent in the first quarter from 80 percent in the fourth quarter of 2012.
But there are warning signs. Though there was incremental demand growth through the first quarter, steel buyers are not showing confidence.
“Consumers are keeping inventories tight, while taking advantage of short mill lead times, and continue to be very watchful of steel mill raw material inputs costs as a leading indicator of finished steel pricing,” Millett said. “We saw some softening of order input rates later in March, as many customers expected product pricings to decrease in sympathy with ferrous scrap pricing. This procurement mentality will continue to drive price volatility, while underlying demand incrementally expands.”
SDI saw a shift toward higher valued-added products in the company's steel shipments during the first quarter compared to the previous quarter. This change helped offset the decreased metal spread, resulting in increased operating income of $4 million. The average selling price per ton shipped increased $5 to $789 in the first quarter.
"Demand for high-quality steel products has not abated," Millett said. "The automotive market remains strong, and we believe there is potential for manufactured goods to continue to build momentum in 2013."
The company plans to start solely using its lower-cost iron concentrate for nugget production in May. However, due to costs related to an outage there, the company still anticipates second-quarter 2013 losses associated with the Minnesota operations to be similar to those recorded in the fourth quarter of 2012.
Timken Remains Profitable Despite Lower Demand
The Timken Company, Canton, Ohio, experienced a drop in both sales and profit during its first quarter. Sales of $1.1 billion were off 23 percent from first-quarter 2012, while net income fell more than 50 percent to $75.1 million.
The decrease in first-quarter earnings was driven by lower demand, a change in mix and higher manufacturing costs, partially offset by improved pricing and lower selling and administrative expenses.
"First-quarter results were in line with our expectations, reflecting difficult comparisons from record first-quarter 2012 results," said James W. Griffith, Timken president and chief executive officer. "Our integrated business model, along with our continued focus on driving efficiencies across our business, enabled us to sustain double-digit operating margins while the company experienced low levels of capacity utilization.”
In its Steel Segment, sales totaled $346.1 million during the quarter, a decrease of 35 percent from the same period last year. The results reflect reduced shipments to the oil and gas and industrial market sectors.
During the quarter, Timken completed three capital investment projects totaling $85 million to increase capacity and manufacturing effectiveness in its Steel segment. The investments include an open-die in-line forge press, an intermediate finishing line and a second induction thermal treatment line at steel facilities in Canton.
Timken also expanded its service and product offering across key end markets through two acquisitions: Smith Services, Inc., a provider of electric motor rewind and repair, and Interlube Systems Ltd., a U.K.-based provider of automated lubrication delivery systems and services.
The company reaffirmed its outlook for the full year based on its continued expectation of improved demand during the latter half of 2013. Sales are expected to be down around 5 percent compared to 2012, while operating performance is expected to remain strong, with all four segments maintaining double-digit operating margins.