AK Steel earnings drop, but new president is optimistic; Loral seesaws but up again

By Carlise Newman

Chicago, Oct. 24 - Earnings were again much of the focus on Friday in a relatively quiet session, with AK Steel Holding Corp. leading the pack lower with a wider third-quarter loss.

AK Steel reported the negative result and said it would eliminate 475 salaried jobs in a move to cut costs. The company posted a quarterly loss of $277.5 million, or $2.56 per share, compared with a loss of $3.3 million, or $0.3 cents a share, a year earlier.

AK cited high energy and raw material costs for the wider loss. Excluding two charges, AK Steel reported a loss of 82 cents a share.

The company's 7 7/8% notes due 2009 were seen at 67 bid, ½ point lower, while the 7¾% notes due 2012 were quoted at 65 bid, down 1 point.

"That's pretty amazing when you take a look at their earnings. They stink," one trader said.

Last week, the company named its acting chief executive, James Wainscott, to the position full time. AK Steel's top leadership had resigned in September after the company reported a string of quarterly losses and failed to acquire competitor National Steel.

AK also said in a conference call that negotiations with unions have improved since Wainscott took over the position full-time a week ago (see report elsewhere in this issue).

Wainscott answered a caller's question about formerly "hostile" union negotiations with AK Steel by saying the union officials have embraced the changes and approaches made within the company.

"We've had numerous meetings with different unions including the United Steelworkers and United Autoworkers. The opportunity definitely exists to make progress in negotiations," he said in the call. "It is consistent with my perspective that we can cross these bridges together."

In early October, the United Steelworkers of America union and new management at AK Steel said they are hopeful of resolving conflicts that arose during the three-year lockout at an Ohio plant.

The union said its president, Leo Gerard, has already engaged in "detailed and productive discussions" with Wainscott. Under discussion are outstanding legal issues, including employees the union contends were discharged unfairly.

AK Steel also said in the conference call it has no plans to file for Chapter 11.

Meanwhile, Loral Space & Communication Inc. climbed, ending the week higher after successfully completing two separate sales of satellites.

Loral's 10% notes due 2006 were down 4 points on the session at 73 bid, one trader said.

"Now we can all take a sigh of relief that we don't have to trade these bonds for a few days. That was a mess," he said, looking forward to the weekend.

The trader was referring to the past week, when the bonds were up about 7 points, and then Tuesday, when they plummeted up to 10 points across the board. But by Wednesday, they were back trading higher again...and Friday they are lower.

On Wednesday Loral subsidiary Space Systems/Loral obtained court approval to sell satellites to DirecTV Inc.

Late Wednesday the court approved the construction of two satellites DirecTV, and one satellite for PanAmSat Corp. PanAmSat also has an option to order an in-orbit spare for one of its existing satellites from Loral.

The value of the three new awards is more than $320 million. DirecTV will make advance payments of $25 million on each of its two new satellite orders and PanAmSat will make an advance payment of $25 million on its new satellite order, for a combined cash advance of $75 million.

EchoStar Communications Inc. sought to purchase the nearly complete DirecTV satellites, a transaction to which Loral was opposed.

DirecTV agreed to increase the total contract value for the satellites by $25 million to $165 million.

Earlier in the week Loral said Intelsat was the high bidder for its north American satellites with a $1.1 billion offer - and it announced late Friday that the bankruptcy court had confirmed the transaction.

Metris Cos. Inc. rebounded somewhat Friday after reporting a much wider third-quarter loss Thursday.

Metris' 10% notes due 2004 were quoted up 1 point to 72 bid, 74 offered, from 71 bid, 73 offered. The bonds had been trading in the high 70s in late September and early October.

The Minnetonka, Minn.-based company, which targets customers with bad credit, reported a third-quarter loss of $130.5 million, or $2.27 per share, compared with a loss of $10.9 million, or 19 cents per share, a year earlier.

In its earnings news release, Metris said that it plans to sell a $500 million credit card receivables portfolio during the fourth quarter. The sale is expected to result in a pretax loss of $64 million, which was reflected in the third-quarter results.

The third-quarter results also reflected the impact of sales of the company's membership club and warranty business, a $590 million credit portfolio, and certificates of deposit, and a reduction in its work force.

"This just shows that sometimes, even though it seems unlikely, sometimes earnings are just a fly-by-night thing when it comes to where the bonds are pricing. It's a confidence issue. It's different with every company," one market participant said.

Metris' bonds had fallen 3 points on Thursday after the earnings were released.

But the market did not ignore Solutia Inc.'s results. Its third-quarter earnings declined from the year-ago period, weighed down by higher energy and raw material prices and several charges, and its bonds reflected the bad news.

The chemical company reported Friday that it had lost $178 million, or $1.70 a share, for the quarter that ended Sept. 30. The results include charges of $156 million, or $1.49 a share, for various items.

Solutia's 7 3/8% notes due 2027 fell to 53 bid from 56 previously, while its 11¼% notes due 2009 dropped three points to 83 bid.

Elsewhere, WorldCom Inc. was heard to have "moved back up to around 36-37 this morning but then settled in at lower levels" later in the day. A trader quoted it ending around 35 7/8 bid.

(Paul Deckelman contributed to this report)

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