By Mike Boyer
Enquirer staff writer

Middletown-based AK Steel Holding Corp. on Tuesday posted its largest operating profit in nearly two years, and said its turnaround is moving into a new phase.

In what he called the "three fixes,'' CEO James Wainscott said AK Steel will seek changes in contracts with labor unions, customers and suppliers to sustain the improvement in its profit picture.

"It's encouraging to be back in the black,'' Wainscott told investors. "But we're still not where we used to be, or where we must be for the long term.''

He said the company needs more flexible agreements with its work force, suppliers of raw materials and contract customers, who buy 3 out of every 4 tons of steel the company sells.

For the three months ended June 30, the producer of flat-rolled carbon, stainless and electric steel reported net income of $92.7 million, or 95 cents a share, compared with a net loss of $78.2 million, or 72 cents a share, a year ago.

In its first quarter, AK Steel, which has lost about $1 billion in the last three years, managed a small operating profit of $1.5 million and net income of $165.4 million after the sale of non-core assets.

Two weeks ago the company projected its second-quarter operating profit at about $55 million. But Tuesday, it beat that projection, reporting an operating profit of $56.4 million - its best performance since the third quarter of 2002.

AK's shares, which hit a new 52-week high of $7.44 last week, drifted lower Tuesday to close $7.01, down 19 cents.

The latest quarter also included an after-tax gain of $44.2 million, or 41 cents a share, on the sale of AK's Houston industrial park and a tax benefit of $27.2 million, or 25 cents a share, related to accounting procedures that kicked in with its return to profitability.

Revenue was a record $1.3 billion on shipments of 1.56 million tons, compared to sales a year ago of $981 million on shipments of 1.39 million tons.

Helping the performance was a rise in the average selling price of its products. AK said the second-quarter average was $835 a ton, up 12 percent from $682 a ton a year ago.

Since Wainscott was named CEO last September in a management shake-up, the company has gone from an $82-a-ton operating loss to posting a $36-a-ton profit.

Wainscott said the turnaround was tribute to the hard work of AK employees but that more needs to be done, especially to overcome a $30-a-ton cost disadvantage AK has with competitors such as U.S. Steel Corp. and Cleveland-based International Steel Group.

The company has negotiated new agreements with unions at its Mansfield and Coshocton, Ohio, plants and its Rockport, Ind., finishing mill and plans to begin talks next week the union at its Zanesville, Ohio, plant.

But, Wainscott said, despite sharing confidential financial information with unions at its mills in Middletown; Ashland, Ky.; and Butler, Pa., those unions haven't responded.

The company, which cut its salaried work force by more than 20 percent last fall, including more than 200 jobs in Middletown, isn't planning drastic reductions in its hourly work force, Wainscott said.

"We're seeking 20 percent head-count reductions, and most of that can come through attribution,'' he said.

At the Middletown Works, the company has trimmed its hourly work force by 4 percent, or 125 jobs, since suspending a provision in the contract with its union.

E-mail mboyer@enquirer.com