Published: July 24, 2007 07:52 pm            

New labor agreements produce big turnaround for AK Steel

CINCINNATI — AK Steel Holding Corp., reaping the benefits of a dozen new labor contracts in the past three years, said Tuesday that second-quarter earnings more than tripled on record sales and shipments, and the company's stock leaped to all-time high.

"We're still hungry," Chief Executive James Wainscott told industry analysts. "For those who think we've peaked, I beg to differ."

Shares were up as much as 8.3 percent, or $3.24, to $41.87 in trading Tuesday, topping the old high in the past year of $40.48. Shares have been as low as $11.57 in the past year.

Net income for the three months ended June 30 was $109.9 million, 98 cents a share, compared with $29.1 million, or 26 cents a share, a year ago, when the Ohio-based steelmaker was four months into a yearlong lockout at its biggest plant.

Analysts surveyed by Thomson Financial were looking for profits of 70 cents per share.

Net sales were a record $1.87 billion on shipments of 1.7 million tons, compared with $1.5 billion on shipments of 1.6 million tons a year ago.

Meanwhile, the nation's biggest steelmaker, Pittsburgh-based United States Steel Corp., reported a 25 percent decline in second-quarter profits because of lower shipments and costs related to the redemption of debt, but still beat Wall Street estimates. Net income fell to $302 million from $404 million on sales of $4.2 billion.

AK Steel reported a pretax, non-cash charge of $24.7 million related to a new labor agreement at the Middletown Works. Excluding that charge, operating profit was $212.1 million, or $124 per ton.

"AK Steel's excellent second quarter results reflect strong shipment levels and prices for our products, an outstanding operating performance and our unrelenting efforts to reduce costs," said Wainscott, who also is chairman and president.

Net income for the first six months of 2007 was $172.6 million, or $1.55 a share, compared with $35.3 million, or 32 cents a share, a year ago. Sales were $3.59 billion in the first half of the year, compared with $2.93 billion in 2006.

AK Steel operated its largest mill, the Middletown Works, with replacement workers and salaried personnel throughout the second quarter of 2006. Union production and maintenance workers ratified a new agreement in March that goes through September 2011, and the mill has been operating with about 700 fewer workers than when the lockout began.

"We're certainly well-positioned, from a labor standpoint," Wainscott said, noting that AK doesn't have another contract due until one with coke plant workers at its Ashland, Ky., mill expires in late 2008.

"We expect to take our performance to a new level," Wainscott said.

He predicted a normal, seasonal slowdown in the third quarter, when automakers switch production schedules and AK Steel plans routine maintenance.

"Shipments are going to be down and, generally, the average price will be down," said analyst Charles Bradford of Bradford Research/Soliel Securities in New York. "That's pretty consistent with historical industry performance in the third quarter."

He said the company's recovery under Wainscott has been phenomenal.

"It wasn't that long ago this was a $2 stock," Bradford noted.

AK announced plans to use cash reserves to pay off the remaining $150 million of debt due in February 2009. About $225 million of the original $450 million of notes was redeemed in March, and another $75 million in May.

On Monday, the company said it will make an early $70 million contribution to its pension fund.

AK Steel makes flat-rolled carbon steel and stainless and electrical steel used in cars and appliances. The company's headquarters and largest mill are in Middletown, about 30 miles north of Cincinnati, and it has smaller plants in Zanesville, Mansfield and Coshocton, Ohio; Ashland, Ky.; Rockport, Ind.; and Butler, Pa.

        

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