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Why AK Steel Stock Popped 18% Today

By Rich Smith - Jul 30, 2019 at 7:52PM

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AK stock is red hot after an earnings beat and a guidance raise.

What happened

Shares of Ohioan steelmaker AK Steel ( AKS ) surged 18.1% to land at an even $3 a share by close of trading Tuesday, after the company reported profits more than three times above what Wall Street had expected.

Heading into earnings, analysts estimated that AK's second-quarter profits would drop by 67% from last year's $0.18, to just $0.06 per share. Instead, profits rose 18% to $0.21 per share.  

Molten steel pouring in a foundry

Image source: Getty Images.

So what

Admittedly, sales did disappoint, falling 4% year over year to $1.68 billion, and missing Wall Street's estimate of $1.77 billion. Given the large profits earned on lower revenue, however, investors were quick to forgive the "sales miss."

Management explained its success by pointing out that it has been avoiding the steel "spot" market lately, where prices have been weak, and instead focusing "on value-added products with fixed-price contracts and to de-emphasize sales to the volatile commodity spot market."

It seems that plan paid off in spades.

Now what

And it could continue doing so. In updating guidance for the rest of this year, AK Steel said if you back out the cost of closing its Ashland Works plant, pro forma profit this year will end up somewhere between $0.37 and $0.44 per share. Although GAAP profit could be as low as $0.13 to $0.20 per share, the pro forma number now looks likely to significantly exceed analysts' $0.34 prediction.

Long story short, AK Steel's Q2 was a "beat" -- and it probably won't be the only one we see this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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