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U.S. Steel (X) Sees Lower Q2 Earnings, To Idle Blast Furnaces

Zacks Equity Research

United States Steel Corporation X has issued its guidance for the second quarter of 2019. The steel maker expects adjusted earnings per share to be roughly 40 cents for the quarter.

The projected earnings reflect a decrease from 47 cents per share recorded in the previous quarter and $1.46 per share the company earned a year ago.

The company’s guidance also fell short of expectations. Analysts polled by Zacks currently expect earnings of 48 cents per share for the second quarter.

U.S. Steel envisions adjusted EBITDA for the second quarter to be roughly $250 million. The projected figure excludes roughly $15 million of estimated impacts from the fire at the company’s Clairton coke making facility in December 2018.  

The company said that its Flat-Rolled segment is being hurt by lower steel prices and weakening end market demand. However, it expects adjusted EBITDA for the unit to be higher on a sequential comparison basis in the second quarter. Flooding in the southern United States led to lower-than-expected shipments in the second quarter, U.S. Steel noted.

Moreover, the company sees sequentially lower adjusted EBITDA for both its U.S. Steel Europe (USSE) and Tubular segments in the second quarter. Lower selling prices are putting pressure on Tubular margins while market headwinds have increased in Europe. Higher imports and headwinds related to raw material costs and demand continue to hurt the USSE unit.   

The company is also idling three blast furnaces in response to the softening market conditions. It will idle two blast furnaces in the United States and one in Europe to better align its global production with its order book.

Last week, the company started a planned maintenance outage at its Great Lakes B2 blast furnace in the United States. U.S. Steel expects the blast furnace to remain idled following the completion of the outage considering current market conditions.

Moreover, the company plans to temporarily idle a south blast furnace at its Gary Works facility. It expects these moves to cut monthly blast furnace production capacity by roughly 200,000 to 225,000 tons starting in July.  U.S. Steel expects Flat-Rolled shipments to third party customers to be roughly 11 million tons for the full year if both furnaces remain idled for the balance of 2019. It will resume production at one or both idled blast furnaces when market conditions improve.

In Europe, U.S. Steel will idle the #2 blast furnace that has a monthly production capacity of around 125,000 tons. U.S. Steel expects USSE shipments to third party customers to be around 3.6 million tons for the full year if the blast furnace remains idled for the rest of 2019. It will resume production at the blast furnace when market conditions improve.

Shares of U.S. Steel have lost 59.2% over a year, underperforming the industry’s 35.8% decline.


 

U.S. Steel, in May, announced that it will invest more than $1 billion to build a new sustainable endless casting and rolling facility at its Edgar Thomson Plant in Braddock, PA, and a cogeneration facility at its Clairton Plant in Clairton, PA., both part of its Mon Valley Works. U.S. Steel said that this investment will further strengthen its competitive position and generate long-term value for its shareholders, customers and employees.

United States Steel Corporation Price and Consensus

 

United States Steel Corporation Price and Consensus

United States Steel Corporation price-consensus-chart | United States Steel Corporation Quote

Zacks Rank & Key Picks

U.S. Steel currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks worth considering in the basic materials space include Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU.

Materion has an expected earnings growth rate of 27.3% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 23% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 342.9% for the current year and carries a Zacks Rank #1. Its shares have surged around 157% in the past year.

AngloGold Ashanti has an expected earnings growth rate of 90.6% for the current year and carries a Zacks Rank #1. Its shares have shot up roughly 90% in the past year.

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