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AK suffers 'very tough quarter'

By Thomas Gnau

AK Steel Corp. continues to suffer heavy losses, with the Middletown-based steelmaker reporting Friday a net loss of $40.8 million, or 38 cents per diluted share of common stock, in 2003’s first quarter.

“It was a very tough quarter for us, and frankly we expect the second quarter to be equally challenging,” AK Chairman and Chief Executive Richard Wardrop said.

AK’s long-pummeled stock received more of a beating on the news, trading at a low of $3.10 at one point Friday. The stock closed at $3.35, down 54 cents, or 13.9 percent, from Thursday’s close of $3.89.

The company blamed lower shipments in the appliance, construction and manufacturing markets, and higher costs for natural gas, pensions and health care for quarter results.

AK reported an operating loss of $40.6 million, or $30 per ton, shipped for the quarter.

For the first quarter this year, the company reported net sales of just more than $1 billion on shipments of 1,365,400 tons.

AK reported an average flat-rolled selling price of $702 per ton, about 2 percent lower than the fourth quarter 2002, but about 6 percent higher than the first quarter of 2002. The company lost a net $25.6 million in the first quarter 2002.

In the fourth quarter last year, AK reported a loss of $489.7 million. Its loss for the full year 2002 was put at $502.4 million.

But Wardrop told steel industry analysts in a conference call Friday that there was nothing “fundamentally wrong” with AK. He said the company’s approach “has not failed and will not fail us in the future.”

Wardrop blamed overcapacity — too many companies making too much steel, creating a buyers’ market — for keeping prices low in the spot and commodity stainless steel markets.

Said Wardrop, “In some ways, our industry seems to be its own worst enemy.”

As a bright spot, the company pointed to a positive $19 million in “earnings before interest, taxes, depreciation and amortization,” equal to $14 per ton shipped.

This measure, sometimes referred to as “EBITDA,” indicates a company’s ability to generate cash, AK said. The company also reported a cash balance of $249 million at first quarter’s end.

“Our liquidity remains in excellent shape,” AK Senior Vice President and Chief Financial Officer James Wainscott said.

While the company focuses on costs, J.P. Morgan’s Michael Gambardella, an analyst, wondered how much more room AK has to control costs — “unless you go into bankruptcy,” Gambardella said.

Wardrop noted that AK Steel was formed in the mid-1990s with about 10,000 employees. And though AK acquired Armco Inc. in 1999, AK still has about 10,000 employees today.

For guidance on the second quarter, Wainscott said the company looks for shipments of about 1.4 million tons. The average selling price may drop another 3 percent, but then natural gas spending in the second quarter may drop $10 million, also, Wainscott said.

published 04/26/03



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