Why U.S. Steel Expects Its Earnings to Fall in 1Q18
In this article, we’ll look at steel companies’ 1Q18 earnings guidance from their 4Q17 earnings calls. On AK Steel’s (AKS) 4Q17 call, Jaime Vasquez, AK Steel’s CFO, said, “We expect that our average flat-rolled steel selling price per ton in the first quarter will be up marginally compared to the fourth quarter of 2017.” However, the company expects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin to rise by 150 basis points in 1Q18 compared to the sequential quarter. Since AK Steel’s revenues are expected to be flat in 1Q18, higher margins should translate into higher EBITDA.
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According to Nucor, (NUE) “Earnings in the first quarter of 2018 are expected to increase compared to the fourth quarter of 2017, exclusive of the benefit recorded in the fourth quarter of 2017 related to tax reform.” According to Nucor, higher steel prices and strong underlying steel demand are the key tailwinds in 1Q18. However, the positives are expected to be slightly offset by weather-related interruptions at some of Nucor’s plants and higher scrap costs.
U.S. Steel Corporation
U.S. Steel Corporation (X) expects to post adjusted EBITDA of $1.5 billion in 2018. Meanwhile, while U.S. Steel’s guidance implies a quarterly run rate of $375 million, the company expects its 1Q18 EBITDA to be in the ballpark of $250 million. It’s worth noting that U.S. Steel’s iron ore mining operations (MT)(CLF), which are consolidated under its Flat Rolled segment, witness negative seasonality in the first quarter that impacts its earnings in the quarter.
In the next and final part of this series, we’ll look at steel companies’ 4Q17 cash flows.