(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
The shorts finally nailed AK Steel (AKS) (shorts are about 17% of AKS’s float). On July 26, AKS reported it will be squeezed by lower steel prices and higher input costs – especially iron ore. The stock opened down 4.8% and sold off all day for a closing loss of 17.5%. The day’s carnage delivered AK Steel’s largest one-day loss since a 19.8% loss on November 20, 2008.
All quotes and information in this post come from Seeking Alpha transcripts for the earnings conference call:
“…we expect shipments between 1.4 million and 1.45 million tons with the average selling price per ton declining about 1% from the Q2 level. We anticipate raw material costs will be up about $20 per ton quarter-over-quarter, with most of that increase attributable to iron ore…”
This translated into very poor guidance with profits taking a severe beating. AKS guided to $15/ton in Q3 while profits last quarter were $46/ton and $14/ton in Q1.
Ironically, AKS noted that Q2 was their “best quarter in quite a while” and noted that…
{snip}
…AKS is now at 9-month lows and at this rate could easily retest 2010 lows around $11.50 (AKS is at $12.73 at the time of writing). Earlier this month, I sold calls against my position anticipating that AKS was hitting the top end of a trading range, but I figured the bottom of that trading range would stay around $14. I will continue to hold here with the expectation that AKS is close to its worst case scenario – absent a new global recession.
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long AKS