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Narrower-than-Expected Loss at U.S. Steel

Zacks Equity Research

United States Steel Corporation (X) recorded adjusted net loss of $20 million or 14 cents per share in the third quarter of 2013 versus net income of $66 million or 41 cents per share posted a year ago. Adjusted loss excludes an after-tax non-cash goodwill impairment charge of $1.8 billion, or $12.24 per share. The results were narrower than the Zacks Consensus Estimate of a loss of 43 cents.

After including the after-tax non-cash goodwill impairment charge, net loss for the reported quarter was $1,791 million, or $12.38 per diluted share compared with net income of $44 million, or 28 cents per share recorded in the year-ago quarter.

Revenues for the third quarter fell roughly 11.2% year over year to $4,131 million, missing the Zacks Consensus Estimate of $4,315 million.
Segment Highlights
U.S. Steel’s Flat-rolled segment reported a profit of $82 million in the third quarter compared with a profit of $29 million in the year-ago quarter and a loss of $51 million in the second quarter of 2013. The sequential upside was due to increased average realized prices and lower repairs and maintenance costs, partially offset by decreased shipments. Average realized price was $752 per net ton in the quarter, up 1.5% year over year and 3.7% sequentially. Shipments suffered in the quarter due to a planned blast furnace outage at the company’s Great Lakes Works and labor disputes at its Lake Erie Works.

The U.S. Steel Europe (:USSE) segment recorded a loss of $32 million in the quarter, sharply down from last year’s profit of $27 million and a profit of $10 million in second-quarter 2013. The sequential decline was due to scheduled blast furnace outages which led to significantly lower shipments and increased facility repairs and maintenance costs.
Average realized price of $714 per net ton declined 2.3% year over year but rose 1.7% sequentially.
U.S. Steel’s Tubular segment profit tumbled 52% year over year but increased 8.9% sequentially to $49 million. Average realized price declined 7.9% year over year and increased 2.2% sequentially to $1,543 per net ton. Total shipments increased sequentially due to increased participation with strategic program customers.

Profit for the Other Businesses segment rose 7.7% year over year and decreased 67.4% sequentially to $14 million. The sequential decline in profit occurred as the prior-quarter included a gain of roughly $30 million from a real estate sale.

Financial Condition
U.S. Steel had cash and cash equivalents of $697 million as of Sep 30, 2013, up 30% from $536 million as of Sep 30, 2012. Long-term debt was $3,618 million as of Sep 30, 2013, down 8.1% from $3,939 million as of Sep 30, 2012.

Moving ahead, results from the Flat-rolled segment are expected to be near break even for the fourth quarter. U.S. Steel expects repairs and maintenance costs to increase sequentially by about $60 million primarily due to reline of a blast furnace at Gary Works and a planned blast furnace maintenance project at Fairfield Works. Shipments are expected to increase slightly in the fourth quarter and average realized prices are expected to be at par with the third quarter.

U.S. Steel expects the USSE segment to post improved fourth-quarter results on a sequential basis. Shipments are expected to rise compared with the third quarter, and facility repairs and maintenance costs are expected to go down in the quarter. Overall, average realized prices in the fourth quarter are expected to decline sequentially due to a return to a more normal level of hot rolled shipments.

Results from the Tubular segment are expected to be at par with the third quarter as benefits of reduced operating costs will be offset by slightly lower average realized prices and shipments.

The company expects total reportable segment and Other Businesses income from operations to decrease sequentially primarily due to planned maintenance outages at its Flat-rolled segment.
U.S. Steel currently carries a short-term Zacks Rank #3 (Hold).

 Other companies in the steel industry with favorable Zacks Rank are Companhia Siderurgica Nacional (SID), Shiloh Industries Inc. (SHLO) and Gerdau S.A. (GGB).  While Companhia Siderurgica and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), Gerdau holds a Zacks Rank #2 (Buy).

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