POSCO (PKX) Q2 Earnings Up Y/Y, Down Q/Q, '17 View Updated
Zacks
Zacks Equity Research
ZacksJuly 21, 2017
Korean steel producer POSCO PKX reported improved year-over-year results for second-quarter 2017. Net income surged 139.8% to KRW 530 billion ($0.47 billion) from the year-ago quarter tally. The rise was primarily driven by revenue growth and improvement in margin profile of the company. Net earnings per share were KRW 1,518.6 or $1.35 per American Depository Receipt (ADR).
However, sequentially (or quarter over quarter) the company’s results were disappointing with net earnings falling roughly 45.8%. This was due to poor performance in the steel, E&C and Energy segments as well as fall in operating profit and share of loss of equity-accounted investees.
Revenues
In the quarter, POSCO’s revenues totaled KRW 14,944 billion ($13.3 billion). The top line improved 16.2% year over year but fell 0.9% sequentially.
Crude steel production decreased 3.1% to 8.8 million tons from 9.1 million tons in the previous quarter. Finished product sales declined 3% sequentially. The company noted that the fall in production and sales volume was primarily due to the revamping of blast furnaces at Pohang Works facility.
Margins
In the quarter, POSCO’s margin profile improved year over year on the back of healthy sales growth, partially offset by 15.8% rise in cost of sales.
As a percentage of total revenue, cost of sales was 87.5% compared with 87.8% in the year-ago quarter. Gross profit margin expanded 30 basis points (bps) to 12.5%. Selling and administrative expenses were flat at KRW 890 billion ($0.8 billion). Operating profit grew 44.2% year over year while operating margin was up 130 bps to 6.6%.
On a sequential basis, the company’s gross and operating margins fell 250 bps individually.
Balance Sheet
Exiting the second quarter, POSCO had cash balance of KRW 7,533 billion ($6.6 billion), down from KRW 7,821 billion ($7 billion) in the previous quarter. Non-current liabilities decreased 2.9% to KRW 13,671 billion ($12 billion).
Outlook
For 2017, POSCO anticipates consolidated revenues to be approximately KRW 59.3 trillion (up from earlier forecast of KRW 54.8 trillion). Finished product sales are estimated to be roughly 35.1 million tons (up from 34.6 million tons) while crude steel production is projected to be nearly 37 million tons. Consolidated investments are likely to be KRW 3.5 trillion.
Global steel demand worldwide is anticipated to grow 1.7% year over year on the back of demand expansion in China, India, U.S., European Nations, Southeast Asia and other emerging nations.