Stelco posts $78 million in second-quarter operating earnings

By Caroline Salls

Pittsburgh, Aug. 4 - Stelco Inc. reported operating earnings of $78 million and net earnings of $40 million for the quarter ended June 30 compared to net earnings of $42 million for the second quarter of 2004, according to a company news release.

The operating earnings are down from $118 million in the first quarter of 2005.

Six-month net earnings were $89 million compared to net earnings of $5 million for the same period in 2004.

According to the release, second-quarter 2005 net earnings were helped by four non-recurring items, including a $20 million gain on the sale of the plate mill assets, $14 million for the balance of an insurance claim recovery related to a June 2004 blast furnace outage, a $4 million gain on the sale of the company's interest in Camrose Pipe and a $4 million gain on the sale of the Welland Pipe U and O pipe mill.

Compared to second-quarter 2004, second-quarter 2005 earnings were negatively affected by decreased shipments and higher costs and reduced Integrated Steel finishing mills production, partly offset by higher selling prices.

Net sales revenue in the second quarter rose to $888 million from $881 million for the same period last year.

In the first half of 2005, sales amounted to $1.86 million, a 12% increase over the $1.65 million recorded for the first six months of 2004.

This increase was attributed to the renewal of customer contracts at substantially higher prices, improved market demand and selling price surcharges implemented to cover high raw material and energy costs in the first quarter, the release said.

During the quarter, Stelco generated $43 million of cash primarily due to cash earnings before working capital and proceeds from the sale of its 40% interest in Camrose pipe, partly offset by expenditures for capital assets, primarily consisting of $30 million related to the Lake Erie phase II hot strip mill upgrade, and working capital changes.

In the previous year, $2 million of cash was generated in the second quarter.

The company said it expects that third-quarter 2005 results will be significantly lower than second quarter and that there will be increased drawings on the Stelco Inc. credit facility.

In the fourth quarter, as a result of a planned shutdown of the Lake Erie hot strip mill to install components related to the phase II upgrade, significant shipments of slabs are planned, and there is a risk that market demand may not support the projected level of slab sales.

While there is a court order outstanding that prevents a strike by Local 8782, the release said there is a risk that delivery of the 90-day notice from Local 8782 could result in disruptions to the company's business.

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