POSCO (PKX) Q2 Earnings, Revenues Up Y/Y; '16 View Intact

Korean steel producer POSCO (NYSE:PKX) reported improved year-over-year results for second-quarter 2016. The company’s net income grew 88.9% year over year to KRW 221 billion ($0.19 billion). The improvement was driven by cost reduction and increase in gains derived from the share of profit from equity-accounted investees.

Net earnings per share were KRW 633.2 or US$0.54 per American Depository Receipt (“ADR”).

Revenues

POSCO generated revenues of KRW 12,857 billion ($11.1 billion) in second-quarter 2016. The top line exceeded the year-ago tally by 15.4%.

Crude steel production in the quarter totaled 9.007 million tons, down from 9.316 million tons in the year-ago quarter. Finished product sales inched down 0.8% year over year.

Margins

In the quarter, POSCO’s cost of sales declined 16.2% year over year. As a percentage of total revenue, cost of sales was 87.8% versus 88.7% in the year-ago quarter. Gross profit margin expanded 90 basis points (bps) to 12.2%. Selling and administrative expenses decreased 13.9% to KRW 891 billion ($0.77 billion).

Operating profit inched down 1% year over year to KRW 679 billion ($0.58 billion) while operating margin was up 80 bps to 5.3%.

Balance Sheet and Cash Flow

Exiting second-quarter 2016, POSCO had cash and financial goods balance of KRW 8,405 billion ($7.3 billion) versus KRW 8,514 billion (US$7.5 billion) recorded at the end of the preceding quarter. Non-current liabilities increased 4.2% to KRW 15,385 billion ($13.4 billion).

Outlook

The company maintained its 2016 financial guidance. For the year, POSCO expects consolidated revenues to be approximately KRW 58.7 trillion. Finished product sales are estimated at roughly 35.3 million tons, while crude steel production is projected to be nearly 37.2 million tons. Consolidated investments are likely to be KRW 2.8 trillion.

POSCO-ADR Price, Consensus and EPS Surprise

POSCO-ADR Price, Consensus and EPS Surprise | POSCO-ADR Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $15.3 billion, POSCO presently carries a Zacks Rank #3 (Hold). Some stocks in the steel industry have been performing better than POSCO and, hence, have gained high investment values. Some better-ranked stocks in the steel industry include Olympic Steel Inc. (NASDAQ:ZEUS) , Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and ThyssenKrupp AG (OTC:TYEKF) . All three stocks sport a Zacks Rank #1 (Strong Buy).