As trading opened on Wall Street after the holiday, AK Steel Holding
In the face of analyst projections of a $0.10 loss per share for the second quarter, AK declared it would actually earn an operating profit of $55 million -- more than $0.50 per share! And that is before it records a one-time gain on its recent sale of a Houston, Texas, industrial park.
The company cited strong demand from its customers, the rising price of steel on the spot market (a trend predicted in Schnitzer Steel's
If all of the above wasn't enough, AK predicts that the profits will continue rolling in over the rest of 2004, due to a reduction in the number of planned maintenance outages it will conduct and, again, to cost reductions.
All of that is wonderful news for AK shareholders who survived the gut check that last quarter's faux "profit" called for. And the prospect of continued profitability will also come as welcome news to those AK workers who have not (yet) been laid off.
Still, something was left unsaid in the company's press release. There was not a word about paying down the company's $1 billion in net debt -- a factor that continues to keep this now-GAAP-profitable company from becoming free cash flow positive. I have said it before, and I will say it again: AK's primary problem is not its labor cost, but its debt load. Until the company gets that issue under control, it is going to be at a continuing disadvantage to less indebted, more efficient, and more profitable steel producers such as Nucor
Fool contributor Rich Smith has no beneficial interest in any companies mentioned in this article.