Now that Christmas is out of the way, it's time for that other "most wonderful time of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up: AK Steel (NYSE:AKS), which reports bright and early Tuesday morning.

What analysts say:

  • Buy, sell, or waffle? A half-dozen analysts follow AK Steel. Two say to buy it, one advises holding, and the rest urge you to sell.
  • Revenues. On average, they're looking for 7% sales growth to $1.5 billion.
  • Earnings. In contrast to last year, profits are predicted. $0.19 per share, in fact.

What management says:
In last quarter's earnings release, AK predicted that it would ship 1.5 million tons of steel in the fourth quarter, but at a lower average per-ton selling price than Q3's 1,522,600 tons. Whether that will translate into lower profits than last quarter, however, depends on several factors.

For one, the firm won't be taking the pre-tax charge that reduced last quarter's operating profit by 23%. On the other hand, the firm does expect to incur "higher costs for planned maintenance outages ... [as AK, much like Mittal (NYSE:MT) is doing,] balances its supply with demand from its served markets." AK also predicted it would face higher costs for raw materials and energy, and a lower LIFO charge than in the third quarter.

All together, the company thinks "the net effect of these items [will yield] an operating profit of approximately $30 to $35 per shipped ton for the fourth quarter of 2006." So look for profits to decline sequentially somewhere between 3% and 17%.

What management does:
Still, profits are better than losses, and last quarter's bumper crop of profits helped AK break a long string of declining gross and operating margins last quarter. What's more, despite last quarter's one-time charge to earnings, the firm's rolling net margins turned positive for the first time in a year.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

13.9

11.6

11.5

10.0

9.7

11.0

Op.

6.7

4.6

4.4

2.9

2.6

4.1

Net

0.9

(1.1)

(0.0)

(1.0)

(0.6)

0.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With the price of oil continuing to fall, you have to wonder whether AK really did encounter rising energy costs this quarter. But even if it did, the good news is that the company has some room to absorb those costs. Over the last six months, revenues have grown 7% year over year, while cost of goods sold rose only 5%. Farther down the income statement, selling, general, and administrative expenses actually fell 1%. Don't be surprised, therefore, if AK turns out to beat its profits projections of three months ago.

Where work remains to be done -- and this is not a problem that AK faces alone -- is on the balance sheet, where inventories have risen at nearly twice the rate of sales growth (13%) in the last six months. Investors should be cheered by AK's acknowledgement of the problem last quarter, though, and its promise to cut production as needed to help reduce those inventories.

Related Competitors:

  • Nucor (NYSE:NUE)
  • U.S. Steel (NYSE:X)
  • Wheeling-Pittsburgh (NASDAQ:WPSC)

Related Foolishness:

Fool contributor Rich Smith does not own shares of any company named above. Mittal Steel was a former Inside Value pick. The Fool has a disclosure policy.