These 2 Steel Companies Have Huge Potential

Two steel companies in the U.S. have made impressive progress so far this year. One is AK Steel Holding Corporation (AKS) and the other is U.S. Steel (X).

Let’s take a look at what’s working for both of them.

AK Steel is making major strides in profitability

AK Steel is making improvements to its operational structure by reducing costs and focusing on boosting profitability margins.

For example, its operating costs in the first quarter of 2016 declined 14% to $1.4 billion as compared to $1.7 billion in the same quarter last year.  Also, it’s selling and administration expenses for the quarter dropped by 8% on a year-over-year basis.

As a result of these reductions in costs, AK Steel was able to improve its EBITDA margin by 61% over the first quarter of 2015.
More importantly, apart from these cost reductions, AK Steel is taking steps to refine its product mix so that it can maximize the return on its assets.

As a part of this strategy, AK Steel is now selling a higher value-added product mix that is less dependent on the spot market sales.

For example, AK Steel has invested approximately $29 million in the coating line at the Dearborn facility to develop the next generation of advanced high strength steel, while also expanding the capacity for high value-added electrical steels.

United States Steel is also making smart moves

United States Steel, through its Carnegie Way benefits, has significantly reduced its cost levels.

The company generated an incremental savings of $647 million in 2015 as compared to 2014, representing $61 per metric ton of savings.
These 2 Steel Companies Have Huge Potential
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As a result, the company managed to generate positive EBITDA of $155 million for its flat rolled segment, despite a significant drop in both prices and volume in 2015.

In fact, United States Steel was able to record this positive EBITDA of $155 million, while operating only at 60% utilization rate.

The most important thing is that the company was able to narrow its net losses for the final quarter of the year to $0.23 per share as compared to net loss of $1.18 per share in the third-quarter of 2015. Even more importantly, the company lowered its losses, despite a 2% drop in the top line sequentially.

Looking ahead, the company plans to upgrade certain finishing facilities at its Fairfield, Granite City and Fairless-Hills locations, which aren’t performing well and run higher utilization facilities such as the Great Lakes, and Mon Valley Works that should improve its utilization rate in 2016. It also plans to further reduce its costs, generate additional Carnegie Way benefits, and realize higher operating efficiencies from its current operating configuration that should improve its bottom line performance going forward.

Both are great turnaround picks

Both AK Steel and U.S. Steel have done well so far this year, and it is likely that their performance will continue to improve in the future. I believe investors should continue to hold their shares as cost efficiencies take hold, boosting long-term profit potential.
Published on Oct 7, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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