What happened
Graphite electrodes manufacturer GrafTech International (EAF 5.10%) missed on fourth-quarter earnings and provided a cautious outlook for 2023. Investors are racing for the exits, sending GrafTech shares down as much as 17% on Friday morning. As of 1:58 p.m. ET, the stock was still down 16.3%.
So what
GrafTech is among the world's largest suppliers of graphite electrodes, a key component in electric-arc steelmaking. Electric-arc furnaces are a fast-growing part of the steel industry because of their relatively low costs and more environmentally friendly setup, and GrafTech is one of the biggest beneficiaries of that trend.
But it is also a business that ebbs and flows with the strength of the economy. On Friday morning, GrafTech reported fourth-quarter earnings of $0.17 per share on revenue of $247.52 million. The revenue number was slightly ahead of expectations, but the profit fell short of the $0.22-per-share consensus estimate.
The quarterly results were impacted by issues at GrafTech's Mexican facility, which was temporarily shut down due to environmental concerns.
"Our year-over-year performance for the fourth quarter was impacted by higher costs, softer industry demand, and the impact of the temporary suspension of our operations in Mexico," CEO Marcel Kessler said in a statement. "As we announced in November, we are pleased to have reached an agreement that allowed for the restart of our Monterrey, Mexico facility."
Now what
Unfortunately, the issues plaguing GrafTech in the fourth quarter did not go away when the calendar turned to 2023. The company forecast "continued soft demand for graphite electrodes due to ongoing economic uncertainty and geopolitical conflict." The company also said that the suspension of operations in Mexico would continue to impact sales volumes through the first half of 2023.
In the meantime, higher raw material costs are likely to boost expenses.
GrafTech remains bullish about its long-term future, and electric arc is the best way for the steel industry to adapt to environmental, social, and governance requirements, but 2023 looks like it will be a struggle. Investors are going to need a good bit of patience if they decide to go along for the ride.
