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U.S. Steel Met by Skepticism as It Recasts Its Profit Guidance

Joe Deaux

(Bloomberg) -- U.S. Steel Corp. gave a third-quarter loss estimate that was better than its guidance just three weeks earlier, helped by a gain from claims arising out of a supplier’s bankruptcy.

Analysts weren’t impressed. Shares were the second-worst performer on the S&P gauge of steelmakers. The stock has slumped 15% since the start of the month when it announced it’s paying $700 million to buy almost half of its high-tech rival Big River Steel, a purchase that will be funded by a lending facility.

“You have to question the motive when a company pre-releases twice,” Phil Gibbs, an analyst at Keybanc Capital Markets, said in a telephone interview. “They’re trying to create good news for themselves, and I think it signals to me a kind of longer-term, more permanent capital raise is likely closer than the reverse.”

On Thursday, U.S. Steel said in a statement it expects to report a third-quarter adjusted loss of 20 cents to 26 cents per share, up from a Sept. 18 estimate for a loss of 35 cents. That will beat a 32-cent average estimated loss by 13 analysts, according to data compiled by Bloomberg. The third-quarter results are due Oct. 31.

“As we said in the press release, we released the preliminary results to support the company’s upcoming capital market activities to support the execution of our strategy,” a U.S. Steel spokeswoman said in an email.

Earlier this month, U.S. Steel said it’s increasing its asset-backed lending facility to $2 billion, from $1.5 billion, to fund the purchase of a 49.9% stake in Big River. Days after the deal was announced, the company said Chief Financial Officer Kevin Bradley is leaving his current position.

In a statement Thursday, the company said stronger shipments, better-than-expected manufacturing performance in its flat-rolled segment, and a contingency gain from recovered claims arising out of the bankruptcy of a supplier improved the outlook for earnings.

The company’s adjusted earnings before interest, taxes, depreciation and amortization are expected to be in the range of $134 million to $144 million, excluding about $9 million of estimated third-quarter impacts from the Dec. 24, 2018 fire at the Clairton coke-making facility and $54 million of estimated restructuring charges, it said.

“Why couldn’t you wait three weeks to say this? Because you’re desperate for good news,” Gibbs said. “Why would you be desperate for good news? You’d be desperate for good news because you need money, and why do you need money, because you just announced a $700 million acquisition in the last week and a half.”

The deal comes at a time when the steelmaker’s cash level is already at the lowest in almost six years, and while the industry is beset by weakening demand and the prospect of oversupply in the market.

Shares rose 0.5% to $10.14 in New York on Thursday, trailing a 2.8% advance in the S&P gauge of steelmakers.

To contact the reporter on this story: Joe Deaux in New York at jdeaux@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Joe Richter

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