ISG expects higher 3Q profits

Record steel prices seen pushing earnings up

September 14, 2004|By BLOOMBERG NEWS

NEW YORK - International Steel Group Inc., built by financier Wilbur Ross from the assets of bankrupt steelmakers, said third-quarter profit will be $2 to $2.10 a share, higher than it had anticipated, because of record steel prices.

ISG, owner of the former Bethlehem Steel mill in Sparrows Point, was expected to have profit of $1.69 a share, the average estimate of seven analysts surveyed by Thomson Financial. The company gave its forecast in a statement ahead of a meeting yesterday with investors and analysts in New York.

Improving U.S. demand is helping ISG and its competitors raise prices and cover the rising costs of natural gas, coke and other raw materials. Steel-market conditions will "remain strong in North America and globally for the near term," Chief Executive Officer Rodney Mott said in the statement.

"The last three months have been good, but what about the rest of the year," said Jacob Doft, chief executive of Highline Capital Management, which owns 378,900 ISG shares. "While their commentary on the North American market staying strong is helpful, it's the long term we care about, and that is so difficult to predict."

Shipments and average prices will be higher next year than in 2004, company executives said at the conference. Energy costs will be little changed, while raw-material costs will be higher.

ISG shares fell 13 cents to close at $33.95 on the New York Stock Exchange. They have risen 21 percent since the Ohiocompany's initial public offering of stock in December.

The average price of hot-rolled steel sheet, the industry benchmark, more than doubled in August to $709 a ton from a year ago, according to PurchasingData.com, which tracks metal prices.

Economic recovery in the United States, Chinese demand for base metals and tight domestic supply are supporting prices, analysts said.

U.S. industrial production strengthened for the third time in four months in July, a sign the economy accelerated after a second- quarter slowdown. Production at the nation's factories, mines and utilities increased 0.4 percent, according to the Federal Reserve in Washington.

Higher selling prices

ISG said in July its average selling prices would rise by about $50 a ton as announced increases in base prices and raw-material surcharges take effect. It predicted its third-quarter shipments would rise by about 300,000 tons, helped by the May purchase of Weirton Steel Corp.'s assets.

Ross formed ISG through the April 2002 purchase of LTV Corp., later adding the assets of Acme Metals Inc. and Bethlehem Steel Corp. The Weirton purchase made ISG the second-biggest U.S. maker of tin after U.S. Steel Corp.

ISG has no acquisitions pending, Mott said. The company is looking at North American and foreign acquisitions, he said.

Shares of ISG and other U.S. steelmakers rose Thursday after Nucor Corp. boosted its third-quarter profit forecast.

Nucor, biggest U.S. maker of steel using recycled metal, also said it would increase its quarterly dividend and split its stock 2-for-1. ISG will consider paying dividends, Chief Financial Officer Leonard Anthony said.

"The thing that makes ISG's guidance more meaningful is it's a newer company making modeling a little more difficult," said Doft, who also owns Nucor shares. "So guidance from ISG becomes more significant than that given by Nucor or U.S. Steel, which have been around for years."

The company expects third-quarter earnings before interest, taxes, depreciation and amortization, of $75 to $80 a ton. It was $42 a ton in the second quarter. ISG will report third-quarter results Oct. 26.

Prices likely to fall

U.S. steel prices probably will start falling toward the end of this year, followed by European and Asian prices in the first quarter of next year, Macquarie Bank said in an e-mail report.

Increasing supplies of scrap steel and coke will allow U.S. steelmakers to increase output at a time when imports are rising and the economy may be weakening, said Macquarie, Australia's only publicly traded investment bank. Prices are likely to peak this month, the bank said.

Standard & Poor's analyst Leo Larkin said in a report that he is raising his 2004 profit estimate for ISG but maintaining his 2005 estimate, "based on our belief that steel prices in '05 will trail '04's levels."

Larkin boosted his 2004 profit estimate to $5.15 from $4.50 a share and expects 2005 profit of $4.20.

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