Will US Steel’s Carnegie Way Help It Overcome Crude Carnage?
How the fall in crude oil prices has impacted US Steel (Part 8 of 8)
Will Carnegie Way help US Steel?
Previously in this series, we have seen how falling crude oil prices are a negative for US Steel (X). The share price of US Steel has tumbled in the past few weeks. The fall in crude oil price is definitely a negative for US Steel’s tubular segment. Let’s now take a look at whether the Carnegie Way program can help US Steel ride out the crude carnage.
US Steel’s Carnegie Way
US Steel’s Carnegie Way is a transformation strategy aimed at restoring the lost glory of the company. Read Market Realist’s article for more about Carnegie Way and its impact on US Steel. The strategic actions taken under Carnegie Way were the key reason behind the upside in US Steel’s share price.
Some analysts believe that the cost reductions that US Steel achieved under Carnegie Way should help US Steel in overcoming weakness in its tubular business.
Our take on US Steel
The tubular segment accounts for only one sixth of total revenues of US Steel. The tubular segment did make up a big chunk of profits of US Steel a few quarters ago. However, looking at the average of the last three quarters, the tubular segment has contributed ~18% to US Steel’s profits.
Under the Carnegie Way, US Steel’s flat-rolled operations have also turned profitable. The flat-rolled segment accounts for two thirds of US Steel’s revenues. Last quarter the earnings before interest, taxes, depreciation, and amortization (or EBITDA) more than doubled for US Steel’s flat-rolled operations.
The huge spike in 3Q profitability is more of a one off event. However, US Steel expects gradual improvement in profitability of its flat-rolled operations. The measures under Carnegie Way will definitely help US Steel in the long term. However, the company could witness short-term volatility, reflecting movement in crude oil prices.
As a result of improved profitability in the flat-rolled segment, US Steel will be able to better compete with companies like ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE). Some of these companies form part of the SPDR S&P Metals and Mining ETF (XME).
You can learn more about the steel industry by visiting Market Realist’s industry page.
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