January 25, 2010 / 1:55 PM / 8 years ago

UPDATE 3-AK Steel profit beats Street view, shares up

4 Min Read

* Q4 profit 36 cents/shr v Street view 20 cents/shr

* Sees higher prices, demand growing

* Shares rise 6 percent (Recasts first sentence, adds CEO comments on demand, prices)

By Steve James

NEW YORK, Jan 25 (Reuters) - AK Steel Holding Corp (AKS.N) posted a fourth-quarter profit on Monday and forecast higher prices, as demand -- especially from the auto industry -- shows signs of growth after more than a year of recession.

The turnaround from a net loss a year earlier handily beat Wall Street expectations and AK Steel's stock rose 6 percent. The company said it was now operating at 85 percent capacity after cutting back as low as 50 percent last year.

"We expect a much-improved 2010 as compared to 2009," Chairman, President and Chief Executive Officer James Wainscott told analysts on a conference call.

"Our annual sales volumes for 2010 should be about 40 percent higher than 2009 ... We are seeing an improvement in overall demand from our customers."

However, he said costs were expected to rise, with scrap already 18 percent higher in the last month and iron ore prices expected to increase by 20 to 25 percent this year.

In fact, AK Steel expects a lower operating profit in the first quarter -- about $35 per ton, compared with $64 per ton in the fourth quarter, he said.

But overall, he said he expected the combination of higher costs and greater demand to result in AK Steel pricing its steel at 4 to 5 percent higher in the first quarter, with shipments around fourth-quarter levels.

"In general we see the year 2010 as one of gradual recovery in the markets that we serve," Wainscott said, noting demand for electrical steel, used in power generation, was weaker.

He said 2009 electrical steel volumes were about 30 percent down last year from 2008 and prices would be about 10 percent less. "We expect at least a 30 percent increase in our volumes compared to 2009, so that's obviously very very good news.

"Customers that we have continue to seek the highest efficiency grades of electrical steel, so pricing will be down, mix will be up, volume will be up and overall, it will be a better year for us in terms of electrical steel."

Asked about demand from automakers, Wainscott said customers and forecasters were looking for an auto build rate this year of about 10.6 million vehicles -- up from 8.5 million units for 2009.

"We certainly expect to negotiate higher prices as our contracts expire at various times in that particular market during 2010. A lot of our deals will expire in the first half and I think that will be very, very helpful," he said.

AK Steel said net fourth-quarter earnings were $39.8 million, or 36 cents per share, compared with a loss of $430.6 million, or $3.87 per share, in the 2008 quarter.

Revenue fell to $1.32 billion from $1.46 billion, even though AK Steel's shipments rose to 1.37 million tons from 1.07 million tons a year earlier.

Analysts on average expected a profit of 20 cents per share, and revenue of $1.254 billion, according to Thomson Reuters I/B/E/S.

The West Chester, Ohio-based steelmaker forecast lower operating and maintenance costs in the first quarter, but expects to incur an accounting charge for inventory.

In a separate release, AK Steel said it will make a $75 million pension trust fund contribution, which will meet a significant portion of the company's 2010 funding requirements

The contribution, in the first quarter, will bring AK Steel's total pension contributions since 2005 to more than $1.1 billion.

Its shares were up $1.11, or 5.5 percent, at $21.30 on the New York Stock Exchange on Monday afternoon, off an earlier high at $21.94. (Reporting by Steve James; Editing by Derek Caney and Matthew Lewis)

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