In their recent third-quarter conference calls with analysts and investors, most steel and aluminum suppliers reported declines in sales and earnings compared with the second quarter.
By the Staff of Metal Center News
Net Loss for Third Quarter
AK Steel, West Chester, Ohio, reported a net loss of $3.5 million for the third quarter of 2011, an improvement from the loss of $59.2 million in last year’s third quarter, but a decline from the $32.4 million profit in the previous quarter.
Net sales for the third quarter totaled $1.59 billion on shipments of 1,368,800 tons, compared to sales of $1.58 billion on shipments of 1,465,800 tons for the year-ago third quarter. AK’s average selling price for the third quarter of 2011 was $1,158 per ton, a 2 percent decrease from the second quarter of 2011, but about 8 percent higher than for the third quarter of 2010.
“Despite the challenges of a sputtering economy and extraordinarily high raw material costs, AK Steel reported operating income for the quarter,” said James L. Wainscott, chairman, president and CEO of AK Steel.
For the first nine months of 2011, the company reported net income of $38.3 million, compared to a net loss for the corresponding 2010 period of $30.6 million. Shipments for the first nine months of 2011 totaled 4,288,900 tons, down slightly from the 4,301,000 tons shipped in the first nine months of 2010. Sales for the first nine months of 2011 hit $4.96 billion, up 8.2 percent from the $4.58 billion in the first nine months of 2010.
The company reported an operating profit of $99.4 million, or $23 per ton, for the first nine months of 2011, up from an operating profit of $20.7 million, or $5 per ton, for the first nine months of 2010. The year-over-year increase in sales revenue was largely offset by increases in raw material costs, particularly for iron ore and metallurgical coal, the company said.
Due to the economic volatility, AK officials offered no forecasts for the fourth quarter.
Revenue, Earnings Dip from Second Quarter
Aluminum giant Alcoa reported increased third-quarter revenue and earnings compared to the year-ago quarter, but lower results vs. the previous quarter, primarily due to lower metal prices, seasonal factors and weakness in Europe.
Alcoa’s net income for third-quarter 2011 totaled $172 million, compared to net income in third-quarter 2010 of $61 million and net income in the previous quarter of $322 million. Revenue totaled $6.4 billion in the third quarter, up 21 percent from the same period last year but down 3 percent compared to second-quarter 2011.
For the year to date, Alcoa’s revenues hit $19.0 billion, up 23 percent over the first three quarters of 2010. Net income through the first nine months of 2011 totaled $802 million.
On a year-over-year basis, Alcoa’s major end markets showed strong revenue growth, led by commercial transportation, up 44 percent; automotive, up 26 percent; packaging, up 21 percent; and aerospace, up 20 percent.
Compared to the second quarter, markets were mixed. Revenue was 5 percent lower for alumina and 1 percent lower for aluminum. In end markets, revenue increased in commercial transportation and aerospace, while declines were seen in automotive, industrial products, building and construction, and packaging.
Chuck McLane, executive vice president and chief financial officer, pointed to two significant developments in the quarter. The first was the sizable commodity price deflation suffered by both aluminum and alumina.
“While aluminum demand continues to grow globally and regional premiums remain strong, macroeconomic worries and various commodity investors have driven an 8 percent drop in the price of aluminum quarter on quarter. The result is a decrease in revenue and profit in both segments,” McLane said during the company’s quarterly conference call with investors and analysts.
Secondly, results in flat-rolled products were damaged by the continuing sovereign debt crisis in the euro zone and resulting market uncertainty. “Fearful of a slowing economy, our European customers reduced their orders dramatically and drove a significant reduction in this segment’s profitability,” he added.
“We continue to forecast a growth rate of 12 percent for 2011 and reaffirm our long-term forecast for a doubling of aluminum demand by 2020. Alcoa is a confident company in a nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt and continued focus on profitable growth,” said Alcoa Chairman and CEO Klaus Kleinfeld.
Aerospace, where order backlogs top eight years, and automotive, where increasing government requirements for fuel efficiency are driving the need for more lightweight materials, are expected to remain strong. Alcoa projects that aerospace will see growth of 6 to 7 percent by year end. In the automotive market, Alcoa projects a year-over-year improvement of 3 to 5 percent.
Recovery in the industrial gas turbine market continues to support a brighter long-term outlook and a 2011 growth projection of 5 to 10 percent. The building and construction market continues to struggle in North America and Europe, however, leading to a growth projection of just 1 to 3 percent, and that is primarily due to continued strength in nonresidential construction in China.
The outlook for commercial transportation is mixed, executives said, with a weaker second half due primarily to lower sales in Europe and China, offsetting strong first-half results in the North American market. Alcoa projects heavy truck and trailer sales will range from flat to 2 percent growth over 2010.
Kleinfeld noted that short selling by investors and speculators on aluminum is a bet not against aluminum specifically, but as “a proxy for betting against the global economy.” And he disagrees with that strategy. “We have growing demand, we have strong physical markets and we have firm support for aluminum prices. We believe folks who have chosen to speculate against aluminum are on the wrong side of the trade.”
On Track Toward Fiscal Goals
Specialty metals maker Carpenter Technology Corp., Wyomissing, Pa., reported net income of $23.8 million on sales of $414.1 million in its fiscal 2012 first quarter ended Sept. 30, 2011. This compares favorably to income of $7.6 million on sales of $351.7 million in the year-ago quarter, as well as income of $22.5 million on sales of $483.6 million in the previous quarter.
“We continue to see good results on overall profitability and profit per pound improvement from our pricing, mix management and operational efficiency efforts,” said President and CEO William A. Wulfsohn. “We remain on track to achieve our fiscal year financial goal of a 50 percent increase in operating income vs. last year, including strong double-digit revenue growth.
“We are also making good progress on our growth strategy. We are optimistic that the Latrobe acquisition will close by the end of the second quarter. We also have made good progress on our major new greenfield capacity expansion project, which will provide increased capacity to meet customer demand and strengthen Carpenter’s leadership position in the production of premium melted alloys,” Wulfsohn said.
Commenting on various markets, Carpenter officials noted that aerospace sales totaled $173.5 million in the recent quarter, up 19 percent compared with the same period a year ago. Aerospace results were driven by increased demand for materials used in fastener, engine and structural components. Demand for titanium fastener material is expected to surpass prior peak levels within this fiscal year, and demand for nickel and stainless fastener material has shown significant growth over the last two quarters.
Energy market sales of $59.2 million increased 98 percent from the year-ago. The higher revenue was driven primarily by the Amega West acquisition, which contributed 70 percentage points to the revenue growth rate. The remainder is attributable to increased demand for materials used for industrial gas turbines and in the oil and gas segment. Activity in the industrial gas turbine market is picking up with increasing demand for flexible generating capacity in North America and international markets.
The oil and gas segment continued to grow due to increases in directional drilling activity and increased sales of higher-value materials used in completion applications. Strong growth trends should continue in the energy market through fiscal year 2012, said company officials.
Carpenter’s automotive market sales were $32.4 million, an increase of 7 percent from a year earlier. The revenue growth is again attributable to pricing and mix management efforts that resulted in increased participation in higher-value turbo charger and fuel system components, with a corresponding reduction in lower value products, the company said.
Optimistic About Long-Term Prospects
Kaiser Aluminum Corp., Foothill Ranch, Calif., reported net income of $4 million on sales of $322 million in third-quarter 2011. That compares to income of $6 million on sales of $263 million in third-quarter 2010, and income of $5 million on sales of $339 million in the previous quarter.
“Third-quarter value-added revenue, adjusted EBITDA and EBITDA margin were similar to the first-half 2011 pace as strong aerospace demand offset the impact of normal seasonal weakness,” said Jack A. Hockema, Kaiser president, CEO and chairman. “As we look forward, our aerospace order book remains strong, and we expect robust aerospace demand to continue in 2012. We are well positioned to meet the growing demand with our previous investments in plate capacity at our Trentwood facility, the expansion of our Kaiser Alexco aerospace extrusion facility, scheduled to be completed at year-end, and the further expansion of plate capacity, which we expect will come on stream in 2013.”
Year-to-date 2011, Kaiser’s total value-added revenue increased 13 percent to $477 million from the prior-year level, reflecting stronger demand and the benefit of acquisitions. Adjusted consolidated operating income for the nine months ended Sept. 30 increased to $62 million from $55 million for the prior-year period. The company’s EBITDA of $81 million was a 17 percent increase over the comparable period of 2010.
Kaiser expects capital spending this year to total $30 million to $40 million as the company continues the expansion of its Alexco facility, commences plate capacity expansion at its Trentwood facility, and makes ongoing investments to improve quality and efficiency. “We remain very optimistic about the long-term growth prospects for aerospace and high-strength applications, and we expect robust long-term demand for our products driven by increasing build rates, larger airframes and monolithic design. We expect fourth-quarter value-added revenue for these applications will be similar to the third quarter, reflecting a strong second-half order rate that should offset normal seasonal weakness,” Hockema said.
“We also continue to be optimistic regarding our automotive opportunities as we have seen significant growth year-over-year driven by higher build rates and increasing aluminum extrusion content. With respect to our general engineering applications, real demand continues to be modest, and cautionary destocking has kept service center inventory at historically low levels. Overall, we expect year-end seasonal weakness in the fourth quarter for automotive and general engineering applications, in line with the trends we experienced in 2010,” Hockema said.
Erosion of Flat-Roll Prices Hurts Earnings
Nucor Corp. reported net earnings of $181.5 million during the third quarter, well above the third quarter of 2010 but down from the previous quarter. The Charlotte-based minimill company saw net earnings of $23.5 million during last year’s third quarter, but $299.8 million in the previous quarter.
For the year to date, Nucor reported net earnings of $641.1 million, an increase of more than 340 percent from the first nine months of 2010.
Nucor’s consolidated net sales in the third quarter increased 3 percent from the second quarter, to $5.25 billion. This compares to $4.14 billion in third-quarter 2010, an increase of 27 percent.
Nucor executives noted that the average selling price for its sheet products declined $94 per ton in the third quarter, though the company’s average selling price fell by just $44 per ton. “Dramatic price erosion in the sheet market was cushioned by greater stability in the selling prices of other steel mill products,” explained John Ferriola, president and COO. “Our bar, beam and plate mills combined provided 61 percent of total steel mill shipments in the third quarter, and our downstream steel products business realized a $20 per ton increase in composite third-quarter price.”
Tons shipped by Nucor to outside customers totaled 5,785,000 in the third quarter, an increase of 3 percent over both the second quarter and the third quarter of 2010. Nucor’s total third-quarter steel mill shipments were up 5 percent over the previous quarter and 9 percent over the third quarter of 2010.
In the first nine months of 2011, Nucor’s consolidated net sales increased 27 percent to $15.19 billion, up from $11.99 billion in last year’s first nine months. Average sales price per ton increased 22 percent, while total tons shipped to outside customers increased 4 percent, vs. the first nine months of 2010. Nucor’s overall operating rate in the third quarter hit 74 percent.
Despite Nucor’s improved utilization rate, Chairman and CEO Dan DiMicco remains concerned about capacity issues in the marketplace and their effect on flat-roll pricing. “Massive overcapacity” created by new production coming on stream and an increased level of imports, particularly in flat-roll, are major issues facing the industry, he said. “That supply-demand situation is what’s dictating pricing in the market, not raw materials,” he added.
Looking forward, Nucor officials don’t see much improvement in demand in the fourth quarter. Still, the industry continues to outperform Wall Street’s assessment of steel. “If we had a market that reacted like the stock market, we’d be vacillating between jumping off a bridge and building a bunker,” DiMicco said.
Flat-Rolled Earnings Limit SDI’s Third Quarter
Steel Dynamics Inc., Fort Wayne, Ind., reported income of $43 million on net sales of $2.0 billion in third-quarter 2011. These figures represent an increase from 2010, but a slight decline from the previous quarter.
SDI’s net income was up more than 200 percent from the $19 million reported in last year’s third quarter, while net sales improved 25 percent. But income was down more than 40 percent and sales were off 5 percent from second-quarter 2011.
Through the first nine months of this year, SDI saw net sales of $6.1 billion, up 27 percent from 2010. Net income through three quarters totaled $247.9 million, an increase of 86.2 percent from last year.
SDI’s third-quarter 2011 steel shipments totaled 1.5 million tons, 12 percent higher than the third quarter of 2010 and 1 percent higher than the second quarter of 2011. The average external steel selling price for the third quarter was up $115 per ton shipped, to $897, compared to the same period in 2010, but down $50 per ton compared to the previous quarter.
Based on the tons of scrap melted at SDI’s five mills, the third quarter’s average ferrous scrap cost per ton was up $79 compared to the year-ago quarter and $5 compared to the previous quarter.
“Quarter over quarter, operating income was significantly impacted by decreased flat-rolled earnings,” said Keith Busse, chairman and CEO. “Despite relatively unchanged volumes, earnings from our Flat-Rolled operations declined 60 percent in the third quarter as declines in pricing were matched with increased raw material costs, resulting in significant margin compression.”
SDI’s mills operated at 93 percent capacity during the quarter. The average flat-rolled selling price per ton shipped decreased $95. Company officials believe that with fairly consistent orders, flat-rolled pricing has reached the bottom in the current cycle.
Business at SDI’s Engineered Bar Products Division remains strong, Busse said. The mill’s production of 167,000 tons in the third quarter was at a rate exceeding its theoretical annual capacity of 625,000 tons. During the third quarter, the company’s Structural and Rail Division achieved a 50 percent utilization rate, its highest production rate since the recession lows of 2009. Third-quarter operating losses for the fabrication segment narrowed to $250,000, as compared to $500,000 in the third quarter of 2010, and $1.6 million in the second quarter of 2011l, he added.
“Looking ahead to the fourth quarter, we believe the economic climate will remain challenging in light of decreased consumer confidence, the uncertain domestic political landscape and the European debt crisis,” Busse concluded. “To a large degree these elements are out of our control; however, we remain confident that with our low-cost manufacturing structure, exceptional employee base and superior operating culture, we are prepared to capitalize on all opportunities
Gains Despite ‘Less Than Robust’ Economy
United States Steel Corp., Pittsburgh, reported third quarter 2011 net income of $22 million on sales of $5.08 billion. This compares favorably to last year’s third-quarter net loss of $51 million on $4.5 billion in sales, but is a step back from the $222 million profit in the previous quarter.
“Our operating results for the third quarter reflected strong performances by our Flat-rolled and Tubular segments. Our Flat-rolled segment made more than $200 million despite the challenges of a less than robust economy in North America,” said Chairman and CEO John P. Surma.
“Tubular segment results improved significantly compared to the second quarter, driven by increased shipments, improved average realized prices and lower substrate costs. U.S. Steel Europe results continue to reflect the difficult economic situation in Europe, particularly in Southern Europe,” Surma added.
U.S. Steel reported third-quarter income from operations of $199 million, compared to operating income of $300 million in the second quarter and a loss from operations of $138 million in third-quarter 2010.
Steelworkers at U.S. Steel Canada’s Hamilton Works ratified a new three-year labor agreement in October. Terms of the agreement include, among other provisions, closing the defined benefit pension plan to new employees and the elimination of cost of living indexing for current and future participants. The new labor pact clears the way for the company to restart the steel finishing facilities in a staged process beginning late in the fourth quarter.
Commenting on U.S. Steel’s outlook for the fourth quarter, Surma expects another strong performance from the company’s Tubular operations. “We expect to report lower operating results in the fourth quarter for our North American Flat-rolled and European operations, however, as a result
of the slow and uneven economic recovery in those regions,” he said.