What happened
Shares of Algoma Steel Group (ASTL 1.03%) are down 6.7% as of 11:30 a.m. ET after the Canadian steel company missed earnings estimates Wednesday night.
Expectations were already pretty low heading into Algoma's fiscal Q4 2023 report. Analysts had forecast that it would lose $0.03 per share on about $670 million in sales, or 29% less than the company sold one year ago. As it turned out, Algoma's loss was much bigger than expected -- $0.19 per share -- despite revenue of $677.4 million being a bit better than feared.
So what
This was obviously not the kind of news investors wanted to hear. While sales exceeded expectations by not falling 29% year over year, they did still decline 28%. However, Algoma shipped more steel in this year's fiscal Q4 than last year's -- 571,647 tons. So the decline in sales wasn't due to any fault of Algoma's, but rather was a simple result of commodity steel being cheaper this year than last -- about 31% cheaper at an average cost per ton of $1,185 -- leading to in lower sales and pushing the company into a small loss in contrast to last year's big net profit.
For the full fiscal 2023 year, Algoma noted that sales dropped 27% to $2.8 billion -- similar to the Q4 slump. The company did manage to rack up some big profits earlier in fiscal 2023, however, resulting in a full-year diluted net profit of $1.71 per share. But even so, this was a big 78% decline from fiscal 2022, in which Algoma had earned $7.75 per share.
Now what
Will Algoma manage to return to profitability in fiscal Q1 2024 and beyond? Perhaps.
CEO Michael Garcia noted that first-quarter steel shipments are looking "strong" so far, with important steel segments back at "normal" production levels. Management didn't give clear guidance on revenue, however -- neither for the coming quarter or the full year -- saying only that steel shipments in Q1 should range from 550,000 to 560,000 tons, which would be down sequentially, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $170 million to $180 million.
It's not easy to translate these numbers into earnings as calculated according to generally accepted accounting principles (GAAP), but for reference, Algoma said its adjusted EBITDA in Q4 was only $47.9 million. If that number is going to triple or better in Q1, I'd say there's a pretty good chance we'll see the steel specialist return to profitability this very quarter.
