U.S. Steel Turns to Loss in Q2
U.S. Steel (X) logged net loss of $78 million or 54 cents per share in the second quarter of 2013 compared to net income of $101 million or 62 cents per share posted a year ago. However, the results were narrower than the Zacks Consensus Estimate of a loss of 81 cents.
The second-quarter net loss includes a tax provision of $3 million, but excludes any tax benefit for pre-tax losses in Canada. The company recorded full valuation allowance on deferred tax assets in this jurisdiction.
Revenues for the second quarter fell roughly 12% year over year to $4,429 million, missing the Zacks Consensus Estimate of $4,583 million. The company faced continued economic challenges, ongoing pressures from lockout at Lake Erie Works project and increased repairs and maintenance costs in the quarter.
Segment Highlights
U.S. Steel’s Flat-rolled segment reported a loss of $51 million in the second quarter compared with a profit of $177 million in the year-ago quarter and a loss of $13 million in the first quarter of 2013. The sequentially higher loss was due to increased operating costs and decreased shipments. Higher operating costs resulted from higher repairs and maintenance costs and higher natural gas costs, partially offset by lower raw materials costs.
Shipments declined 7.2% sequentially and 6.5% year over year to 3.7 million net tons. Shipments declined sequentially due to continuing lockout at Lake Erie Works that started on Apr 28, 2013. Average realized price was $725 per net ton in the quarter, down 6.1% on a year-over-year basis, but it increased 0.8% on a sequential basis.
U.S. Steel Europe (:USSE) recorded a profit of $10 million in the quarter, representing a decline from last year’s profit of $34 million and profit of $38 million in first-quarter 2013. The sequential decline was due to higher iron ore costs and lower average realized euro-based prices. Average realized price of $702 per net ton declined 8.4% year over year and 2.2% sequentially.
U.S. Steel’s Tubular segment’s profit tumbled 53.6% year over year and 29.7% sequentially to $45 million. Total shipments increased sequentially due to increased participation with the strategic program customers. Average realized price declined 11.5% year over year and 3% sequentially to $1,510 per net ton. The decline in average realized price was due to lower prices for line pipe product, continued elevated levels of imports and OCTG mix effects.
Financial Condition
U.S. Steel had cash and cash equivalents of $767 million as of Jun 30, 2013, up 35.7% from $565 million as of Jun 30, 2012. Long-term debt was $3,611 million as of Jun 30, 2013, down 5% from $3,801 million as of Jun 30, 2012.
Outlook
Moving ahead, U.S. Steel expects its third-quarter 2013 Flat-rolled and Tubular segments results to improve sequentially. However lower results are expected in the European segment due to a planned blast furnace outage in the third quarter. Total reportable segment and Other Businesses operating results are expected to be near breakeven on a sequential basis.
Results from the Flat-rolled segment are expected to improve based on an increase in average realized prices, reduced raw materials costs, and lower repairs and maintenance costs, partially offset by lower shipments. Average realized prices are expected to rise on a sequential basis on the back of increased spot market prices and more favorable product mix.
U.S. Steel expects the Tubular segment to post improved third quarter results on a sequential basis. Shipments are expected to increase compared with the second quarter to support a higher level of drilling activity, while average realized prices are anticipated to be at par. Higher production volumes leading to operating efficiencies are expected to be reflected in lower operating costs in the third quarter.
Results from the USSE segment is expected to be lower than the second quarter as a result of a planned blast furnace outage, leading to lower shipments and increased facility repairs and maintenance costs. Lower iron costs may result in lower raw material costs in the third quarter.
U. S. Steel expects to get a pre-tax gain of $23 million as an item not allocated to segments in the third quarter related to a supplier contract dispute settlement agreement that it entered on Jul 1.
U.S. Steel currently carries a short-term Zacks Rank #3 (Hold).
Other companies in the steel industry with a favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Nippon Steel & Sumitomo Metal Corporation (NSSMY). All of them hold a Zacks Rank #1 (Strong Buy).
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