Steel maker AK Steel (NYSE:AKS) has done significantly better with its turnaround strategies in the last one year with shares growing more than 100%. But, AK Steel is facing tough times as it experiences operational disruption at its Middletown Works blast furnace. Nevertheless, AK Steel has managed to come up with strategic investments and initiatives.
AK Steel faces trouble in the electrical segment due to excess capacity, unfairly traded imports and relatively flat demand. The company is fighting several cases on grain-oriented electrical steel, or GOES products, and non-GOES material against a host of global producers. To its relief, the International Trade Commission has made a preliminary finding in favor of the domestic industry, with respect to material injury. This could be another factor that can enhance the company’s revenue going forward.
However, according to the World Steel Association, global crude steel output declined in January, with the decline across North America and Asia being a point of concern for AK Steel.
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AK Steel has made considerable changes to its business to reposition the company. It has made important progress on its diversity initiatives, and stood tall in overall customer satisfaction among its peers. AK Steel was also awarded for its vertical integration investments in Magnetation and AK Coal. These moves will certainly help AK Steel to increase its contract sales and lower its cost that will further assist in improving its margins.
The Path Ahead
AK Steel remains positive about its outlook as the automobile industry that accounts for 50% of its sales is going strong year by year. Last year, auto sales in the U.S. were very strong, with sales hitting 15.6 million units and analysts expects sales to hit 16 million units in the current fiscal 2014.
Therefore, the company expects higher shipments of carbon and stainless steel products in 2014. AK Steel has already witnessed strong demand for its autochrome stainless steel products. It plans to increase steel prices in the near future as the future contracts for steel prices that AK Steel enters into with auto companies will soon expire. Hence AK Steel would like to optimize this opportunity to work in its favor.
AK Steel has also seen a positive sign of growth in real estate as housing activity was strong in 2013, with the industry growing approximately 20%. Analysts expect this momentum to continue with another 15% to 20% rise in 2014 as new housing projects are expected to cross the 1 million mark in 2014. This will accelerate demand for appliances, HVAC, power generation, etc., and ultimately increase steel demand.
In addition to this, by the end of the second quarter, AK Steel expects lower steelmaking input costs, led by a decrease in coal and coke costs. AK Steel stands optimistic as it observes low inventory levels at various service centers.
The steel maker is aggressively concentrating on product quality and customer satisfaction. An independent survey of customers, conducted by Jacobson and Associates, showed that AK Steel has the No. 1 position in overall customer satisfaction as compared to its peers. The company is determined to provide the best services to its customers in the future as well, and this sets the tone for positive performance in future.