Hamilton, Ontario-based Stelco Holdings Inc. today provided an update on the market and its operational performance.
The company anticipates Q1 2018 adjusted EBITDA to be between $60 million and $70 million, largely reflecting sales orders booked in Q4 2017 at market prices materially below current levels and incremental transportation costs resulting from general shortages of trucks used to deliver products in Q1. The expected results compare to Q4 2017 EBITDA of $69 million.
The company anticipates revenue and adjusted EBITDA will improve in Q2 2018 as legacy sales contracts from Q4 2017 roll-off and are replaced by higher price contracts executed in Q1 2018 and as shipping volumes and efficiencies improve. Based upon these expectations, the company anticipates Q2 2018 adjusted EBITDA to be between $120 million and $150 million.
The company continues to experience improving market conditions and favorable pricing trends across its key products. The company also has a strong order book across its hot-rolled coil, cold-rolled coil, and coated products. The company's order book is subject to a lag in order entry and revenue recognition with orders being booked today estimated to be delivered in eight to ten weeks.
As a result, the company's Q1 2018 sales will largely reflect sales orders booked in Q4 2017, and Q2 2018 sales are expected to largely reflect sales orders booked in Q1 2018. In Q1 2018, shipments are expected to be 3 percent to 5 percent higher than Q4 2017. In late Q1 2018, the company expanded its distribution capabilities by adding approximately 200 rail cars to its distribution fleet and increased its shipping capacity through its LEW dock enhancement project.
In a press release, the company said Q1 and Q2 2018 earnings estimate ranges are based on a number of assumptions, including but not limited to, the following material assumptions:
- The company's anticipated margins per net ton will increase largely due to price and volume increases, as well as operating efficiencies, partially offset by inflation in fixed and variable cost structures over the period.
- Steel prices will generally increase period to period consistent with current trends and sales activities over the period.
- The company will see increases in shipping volume as it expands its distribution capabilities through the relevant period.
- The Q1 2018 and Q2 2018 product mix is expected to be comparable to Q4 2017, although as trial shipments to automotive OEMs continue to see success, the company could see a gradual shift in some of its product mix toward higher value products if such shift results in higher margins.
- There will be no significant additional legal or regulatory developments, changes in economic conditions, or macro changes in the competitive environment affecting Stelco’s business activities.
However, the company said potential further changes to trade regulations in the United States or amendments to the North American Free Trade Agreement could materially alter underlying assumptions around the company’s expected financial performance.