A few steel companies are lined up to report their quarterly results this week -- the busiest of this earnings season. The steel industry falls under the broader Basic Materials sector which is among nine of the 16 Zacks sectors that are expected to see negative earnings growth in the second quarter, per the latest Earnings Trends report.
Based on the earnings scorecard as of Jul 22, earnings for the sector participants in the S&P 500 index are up 1.2% from the same period last year on 4.8% lower revenues. The growth picture for the Basic Materials sector looks glum as the sector is expected to see an earnings decline of 13.9% on 7.7% lower sales.
Steel market conditions in the U.S. have improved lately, driven by favorable rulings on steel trade cases in the recent past, providing some reprieve to U.S. steel makers.
Domestic steel makers are expected to benefit from the favorable impact of reduced steel imports as a result of these punitive actions (leading to levy of tariffs on imports) and an improved steel pricing environment. According to the American Iron and Steel Institute ("AISI"), total steel imports for the first five months of 2016 dropped 31% from the same period a year ago. Steel makers should also gain from continued strength in the automotive market. However, depressed oil prices are still affecting demand for steel in the energy market.
Let’s take a peek at three prominent steel companies that are gearing up to report their second-quarter numbers on Jul 26.
United States Steel Corp. (NYSE:X) is scheduled to report second-quarter results after the bell. Our model did not earlier conclusively show that U.S. Steel is likely to beat estimates, but the current numbers indicate that the company is expected to come up with a positive earnings surprise as it carries a Zacks Rank #2 (Buy) and Earnings ESP of +12.73%. U.S. Steel missed the Zacks Consensus Estimate in three of the trailing four quarters, with an average negative surprise of 39.56%.
The company is expected to benefit from improving market conditions for its Flat-Rolled and European divisions and the positive impact of a rise in prices for flat-rolled products. Strong demand in the automotive space and the company’s actions to improve its cost structure through its Carnegie Way program should also lend support to its second-quarter results. (Read more: Will U.S. Steel Spring a Surprise This Earnings Season?)
Allegheny Technologies Inc. (NYSE:ATI) will report second-quarter numbers before the bell. The company is expected to post a positive earnings surprise as it carries a favorable Zacks Rank #3 (Hold) and Earnings ESP of +2.56%. The company beat the Zacks Consensus Estimate in three of the trailing four quarters.
Allegheny should benefit from its diversified global growth markets and cost reduction measures. It is also seeing higher demand from the automotive sector. Demand for nickel-based and specialty alloys for automotive applications has been rising. The company’s High Performance Materials & Components segment is benefiting from the growth phase of the aerospace sector. (Read more: Is Allegheny Poised for a Beat this Earnings Season?)
AK Steel Holding Corporation (NYSE:AKS) , which will report second-quarter results ahead of the bell, is expected to come up with a positive earnings surprise as it holds a Zacks Rank #2 and Earnings ESP of +100%. AK Steel has beaten the Zacks Consensus Estimate in the trailing four quarters with an average beat of 127.34%. The company should gain from improved domestic steel market conditions and strong demand for its carbon and stainless steel products from its automotive customers.
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