WCI posts loss but focuses on future

The steelmaker plans to keep investing in either upgrades or an acquisition.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
WARREN -- WCI Steel is looking forward to a brighter future after recording a financial loss last quarter and suffering through a difficult start to 2007.
The Warren steelmaker said Monday that it lost 1.1 million in the fourth quarter, which ended Dec. 31.
Product sales last quarter were 191.2 million, compared with 202.8 million in the same quarter of 2005.
Among the factors leading to the loss last quarter were a lower average selling price for its steel, an accounting charge of 1.3 million for a buyout program for salaried workers and higher depreciation expenses.
In addition, the current quarter is proving to be difficult, Patrick Tatom, company president, said in a conference call with industry analysts. The average selling price for its steel has fallen 45 a ton from last quarter to 631, and its mill lost production of 20,000 tons of steel from a two-month outage. An accident damaged a vessel that carries molten iron.
Indication of difficulties
The company's recent difficulties are reflected in its earnings before interest, taxes, depreciation and amortization. This figure represents how much cash is being generated by its manufacturing operations.
WCI had projected this figure to be at least 10 million for the fourth quarter but it came in at 7.5 million. Tatom said WCI will be challenged to break even under this measure for the current quarter.
He added, however, that finances will improve substantially throughout the year. Volume and pricing is expected to improve in the second quarter.
Tatom said he's optimistic about the future of WCI, which has earned 15 million in the first eight months since it emerged from bankruptcy court protection May 1.
One reason for his optimism is that two construction projects are on, or ahead of, schedule.
A new 29 million baghouse, which filters dust out of gas produced in steelmaking, is to be operational April 23. Tatom said the new equipment will help the mill meet new environmental standards and improve steelmaking.
A new 37 million furnace is expected to be completed in January. The walking beam furnace reheats steel slabs for further processing.
Tatom said the new furnace will make the mill more efficient, which will lower operating costs by 10 million a year and increase profits by 4 million. He added that the furnace will allow the mill to make larger steel coils and more value-added products.
More investments
WCI isn't done spending money, however.
Tatom said he expects two more investments to be announced by the end of the year. More mill upgrades and acquisitions are being studied, he said.
These investments will be designed to increase WCI's focus on value-added products, which carry higher profits, he said.
WCI wants value-added products to make up 60 percent to 70 percent of its sales. Those products will make up 47 percent of sales in the next quarter.
WCI shipped 283,000 tons of steel last quarter and expects that to increase to 290,000 tons this quarter, even with the outage that occurred. It expects shipments of 310,000 in the second quarter even though it will lose 25,000 tons because of planned outages related to the construction work.
WCI, which employs 1,300 hourly and salaried workers, is the smallest integrated steelmaker in North America. Integrated steelmakers are those that use blast furnaces to make steel from raw materials.