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U.S. Steel Sees Lower Demand to Hurt Q2 Financial Results

Zacks Equity Research

United States Steel Corporation X has issued its guidance for second-quarter 2020.

The company projects adjusted EBITDA to be a loss of around $315 million for the second quarter. Adjusted loss per share is expected to be around $3.06. Further, it expects liquidity requirements through Dec 31, 2020 to be around $700 million.

In the Flat-rolled segment, the company expects results to be sequentially lower in the second quarter due to the impact of the coronavirus pandemic on customer activity, mainly in the automotive and energy end-markets. Additionally, weakness in underlying demand has also affected the U.S. Steel Europe segment’s performance.

Market conditions also remain challenging in the Tubular unit. Oil prices are at historically low levels and rig counts are also declining. This is affecting demand for welded and seamless pipe. The company has indefinitely idled its Lone Star and Lorain facilities. It has consolidated the tubular production to its Fairfield seamless mill. U.S. Steel is identifying ways to reduce costs within the unit. This includes the cost reduction expected by in-sourcing its rounds production to the new electric arc furnace.  The electric arc furnace is slated to start production in the second half of 2020.

U.S. Steel’s results in the second quarter are significantly impacted by the pandemic and costs associated with idling of steelmaking operations. Despite challenges in the second quarter, the company is optimistic as OEM restarts are progressing well and customer demand has started to return.    

U.S. Steel is also delivering on its commitment to extract incremental value from its iron ore assets. Notably, the company has entered into new agreements that will deliver incremental earnings and cash in 2020 and beyond. Additionally, U.S. Steel has identified and completed actions that position the company to realize $200 million in fixed cost-reduction target, a year ahead of its original 2022 goal. Also, its successful senior secured notes offering in May has also strengthened its liquidity.

Shares of U.S. Steel have lost 38.2% in the past year compared with the industry’s 28.8% decline.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the basic materials space are Alamos Gold Inc. AGI, B2Gold Corp BTG and Franco-Nevada Corporation FNV, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Alamos Gold has an expected earnings growth rate of 65% for 2020. The company’s shares have surged 40.1% in the past year.

B2Gold has an expected earnings growth rate of 214.3% for 2020. Its shares have returned 76.7% in the past year.

Franco-Nevada has an expected earnings growth rate of 60.2% for 2020. The company’s shares have surged 68.3% in the past year.

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