U.S. Steel Turns to Profit, but Earnings Miss

Zacks

United States Steel Corporation (X) swung to a profit in first-quarter 2014 as it benefited from its cost improvement actions under the Carnegie Way initiative and higher pricing that offset headwinds from harsh weather.

Net income for the reported quarter was $52 million or 34 cents per share compared with a net loss of $73 million or 51 cents per share recorded in the year-ago quarter. However, it missed the Zacks Consensus Estimate of 37 cents.

Revenues for the first quarter fell roughly 3.2% year over year to $4,488 million, also missing the Zacks Consensus Estimate of $4,583 million.
Shipments for the reported quarter was 5.1 million, down from 5.5 million recorded a year ago, impacted by bad weather conditions.

Segment Highlights

U.S. Steel’s Flat-rolled segment reported a profit of $85 million in the first quarter compared with a loss of $13 million in the year-ago quarter and an income $87 million in the fourth quarter of 2013. Average realized prices increased due to higher contract and spot market prices.  Shipments also increased due to production at Lake Erie Works for the full quarter.

The U.S. Steel Europe (:USSE) segment recorded a profit of $32 million in the quarter, down from last year’s profit of $38 million and up from $12 million in fourth-quarter 2013. The segment posted profit in the quarter due to higher average realized prices and $17 million of favorable effects from transactions to sell and swap a portion of its carbon emission allowances.

U.S. Steel’s Tubular segment profit was $24 million in the first quarter, down 62.5% year over year and 25% sequentially. The sequential decline was mainly due to lower average realized prices and increased substrate costs.

Profit for the Other Businesses segment rose 160% year over year but declined 13.3% sequentially to $13 million.

Financial Condition

U.S. Steel had cash and cash equivalents of $1,099 million as of Mar 31, 2014, up from $604 million as of Dec 31, 2013. Long-term debt was $3,615 million as of Mar 31, 2014, essentially flat compared with $3,616 million as of Dec 31, 2013.

Outlook

Moving ahead, U.S. Steel expects lower income from operations in the second quarter of 2014. The company expects production to be limited and the supply of raw materials and finished products to be less due to temporarily slow shipments, mainly resulting from continued weather-related logistical issues.

The company expects to report a loss in its Flat rolled segment for the second quarter. The unfavorable weather conditions are expected to limit production capabilities, increase costs and reduce shipments.

U.S. Steel expects results for its European segment to decrease in the second quarter due to the absence of the sale and swap of carbon emission allowances in the first quarter.  Shipments and average realized prices are expected to be at par with the first quarter.

Tubular results are forecast to increase compared to the first quarter.  Shipments are projected to be higher due to increased drilling activity.  The company expects average realized prices to be in line with the first quarter.
The company expects to retire the Senior Convertible Notes due in May 2014 without refinancing.

U.S. Steel currently carries a Zacks Rank #3 (Hold).

Other players in the steel industry worth considering are Companhia Siderurgica Nacional (SID), Gerdau S.A. (GGB) and ThyssenKrupp AG (TYEKF). While Companhia Siderurgica carries a Zacks Rank #1 (Strong Buy), Gerdau and ThyssenKrupp hold a Zacks Rank #2 (Buy).

Read the Full Research Report on SID
Read the Full Research Report on X
Read the Full Research Report on GGB
Read the Full Research Report on TYEKF


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