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Fourth-Quarter Financials: Mills

Another Tough Year

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In their fourth-quarter reports to analysts and investors, executives from the industry’s publicly held mills reported challenging market conditions and declining sales.

Arconic Cites Progress as Standalone Company

Arconic, the New-York based aluminum maker, reported a loss of $1.2 billion on sales of $3.0 billion in the fourth quarter. For the full year, the company reported a loss of $900 million on sales of $12.4 billion. Arconic completed its first quarter of operation as a standalone company following
its 2016 spinoff from Alcoa.

Excluding special items, the company’s fourth-quarter adjusted income from continuing operations totaled $71 million, driven by strong productivity gains of $186 million across all segments. Those gains were partially offset by cost increases and unfavorable price and mix, predominantly in aerospace.

“In the fourth quarter, we completed the successful separation from Alcoa, Inc., which has unlocked substantial value for all shareholders. In the face of significant market challenges, we continued to improve the businesses. We increased adjusted EBITDA margins 100 basis points or more in each of our three business segments, delivered strong net savings and systematically cut overhead cost,” said Chairman and CEO Klaus Kleinfeld during the company’s conference call with investors and analysts.

In its Global Rolled Products business, Arconic reported fourth-quarter revenue of $1.1 billion, a decrease of 9 percent compared to the same quarter in 2015. The revenue decline was partly due to the ramp down in the company’s Tennessee packaging operation. The company also set quarterly records for automotive sheet shipments, up 56 percent compared with the previous year.

“In 2017, we are squarely focused on operational improvements, margin expansion, and capital efficiency to drive shareholder returns. We will continue to cut cost through productivity and corporate overhead reduction. Beyond our stated targets, our retained interest in Alcoa Corp. provides an additional lever for value creation,” Kleinfeld said.

Kaiser Reverses 2015 Loss

Kaiser Aluminum Corp., Foothill Ranch, Calif., reported net income of $92 million in 2016, a turnaround from the $237 million loss posted in the previous fiscal year. The company’s net sales declined 4.3 percent to $1.33 billion.

“For the full year 2016, we achieved record value-added revenue, adjusted EBITDA and adjusted EBITDA margin,” said Chairman and CEO Jack Hockema. “Although we benefited from solid demand and low contained metal costs, our strong operating performance was the primary driver of our results.”

In the fourth-quarter, Kaiser’s net income totaled $23 million, up from $13 million in the prior-year period and up from $19 million in the third quarter. Net sales totaled $332 million in the quarter, an increase on the $317 million in the same quarter in 2015 and the $321 million in the prior quarter.

“Our fourth-quarter 2016 results reflect solid underlying demand with normal year-end seasonal weakness. Strong shipments and value-added revenue were supported by delivery of the unusually high in-transit aerospace plate inventory at end of the third quarter,” said Hockema.

“Earnings benefited from strong sales margins, as the negative impact of competitive price pressure was more than offset by favorable product mix and strong underlying manfacturing efficiency.”

Looking ahead, Kaiser expects supply chain destocking to put downward pressure on aerospace shipments in 2017 before the segment responds with strong growth in 2018 and 2019. The company also expects automotive build rates to decline 1-2 percent this year, though the increasing use of aluminum extrusions will result in overall shipment growth.

Novelis Enjoys Quarterly Improvement

Atlanta-based Novelis reported net income of $63 million in its third quarter, a ten-fold increase from the $6 million reported in the same period in 2015. The aluminum rolling company reported net sales of $2.31 billion in the quarter, a decline of 2.0 percent from the prior year.

For the year to date, Novelis posted a net loss of $2 million, a significant improvement from the $67 million loss in the first nine months of the previous fiscal year. Net sales declined 6.7 percent to $6.97 billion.

“Continued operational efficiencies combined with strong aluminum automotive sheet demand and strategic capacity investments delivered record, sustainable adjusted EBITDA results this quarter,” said Steve Fisher, president and CEO.
Overall, Novelis experienced a 4 percent decline in total shipments of rolled aluminum products to 750 kilotons, mainly due to prior strategic decisions to reduce volumes in China and soft demand in South America.

Nucor Defies Difficult Conditions

Nucor Corp., Charlotte, N.C., reported net earnings of $796.3 million in 2016, an almost 10-fold gain over the previous fiscal year’s earnings of $80.7 million, despite a 1.5 percent decline in net sales to $16.2 billion.

Total tons shipped to outside customers increased 7 percent in 2016 to 24.3 million tons, while the average selling price fell 8 percent. The company’s steel mills operated at an 80 percent utilization rate, an improvement on the 73 percent rate in 2015.

Nucor’s fourth-quarter performance was key to its improved earnings for the year. The minimill steelmaker reported fourth-quarter earnings of $159.6 million, a reversal of the $187.5 million loss in the same period in 2015.
Nucor’s net sales totaled $3.96 billion in the fourth quarter, a 14 percent increase from fourth-quarter 2015, but down 8 percent from the prior quarter. The average sales price was consistent with fourth-quarter 2015, while shipments to outside customers increased 14 percent to 5.8 million tons.

Nucor executives expect improved volume levels in first-quarter 2017, particularly at the company’s sheet and plate mills. “Higher input costs and declining imports are now causing the market to find an improved and more sustainable level that we expect to benefit 2017,” said John Ferriola, chairman, president and CEO of Nucor. “We believe full-year 2017 profitability could significantly exceed the level achieved in 2016.”

TimkenSteel Reports Full-Year Loss

TimkenSteel, Canton, Ohio, reported a net loss of $105.5 million for full-year 2016 on sales of $869.5 million. The steelmaker reported a net loss of $45.0 million on sales of $1.11 billion during the previous year.

TimkenSteel’s fourth-quarter sales totaled $214.7 million, a modest increase over the fourth quarter of 2015 and the prior quarter. The company reported a loss of $67.0 million in the quarter, compared with a loss of $13.8 million in fourth-quarter 2015 and a loss of $22.2 million in the third quarter.

“Throughout 2016, we structurally improved the operating performance of the company in the face of weak global commodity markets and high customer inventory levels. We used that down period to aggressively manage costs, generate cash, increase our share in key markets and broaden our portfolio of business,” said Tim Timken, chairman, CEO and president.

During the fourth quarter, TimkenSteel shipped approximately 193,000 tons, an increase of 10.1 percent over the same period in 2015, and up 8.6 percent from the third quarter. The gains were attributed to greater market penetration and sales initiatives, including winning business with tube makers.

The fourth-quarter gains are expected to continue into the first quarter. The company forecasts a 40 percent increase in shipments, with stronger sentiment across all markets.

“We expect 2017 to be a better year, starting off with projected sales in the first quarter that are higher than the typical seasonality. The actions we’ve taken to strengthen the company in the last year position us well to deliver greater value to customers and shareholders both in the coming year and throughout the economic cycle,” Timken said.

Results Improve, Despite Loss

United States Steel Corp., Pittsburgh, reported 2016 net sales of nearly $10.3 billion, down from $11.6 billion in 2015. The steelmaker’s 2016 net loss of $440 million after unfavorable adjustments was an improvement on the $1.6 billion loss in 2015. Management points to a positive adjust-
ed EBITDA of $510 million as evidence that its efforts to streamline its operations are paying off.

“Despite lower averaged realized prices and shipments in 2016, our results are better as we continued to improve our product mix and cost structure,” said U.S. Steel President and CEO Mario Longhi. “We are well positioned to accelerate the revitalization of our assets to improve our operating reliability and efficiency and deliver value-enhancing solutions.”

U.S. Steel saw improved returns in its Flat-Rolled segment, largely due to lower raw materials costs, partially offset by lower average prices and shipments. Flat-Rolled sales saw a $3 million loss in 2016, an improvement from the $237 million lost in 2015. Its Tubular segment continued to struggle along with the depressed energy sector, reporting a $304 million loss.