United States Steel Corporation (X) reported disappointing fourth-quarter 2011 results. Net loss came in at $226 million or $1.57 per diluted share.
Excluding the $51 million of net foreign currency losses and an $11 million after-tax environmental remediation charge, adjusted fourth-quarter 2011 net loss came in at $164 million, or $1.14 per diluted share, much below the Zacks Consensus Estimate loss of 82 cents per share.
For full-year 2011, U.S. Steel reported a net loss of $68 million, or 47 cents per diluted share compared with a net loss of $482 million, or $3.36 per diluted share in full-year 2010.
Operational Performance
Revenue in the quarter improved 14.4% year over year to $5.1 billion from $4.8 billion, slightly above the Zacks Consensus Estimate of $4.7 billion. For full-year 2011, revenue was $19.9 billion versus $17.4 billion in fiscal 2010.
U.S. Steel’s reportable segments and Other Businesses reported a loss of $43 million, or $8 per ton, in the fourth quarter of 2011, compared with a loss of $77 million, or $14 per ton, in the fourth quarter of 2010.
U.S. Steel reported loss from operations of $160 million compared with a loss from operations of $114 million in the fourth quarter of 2010. For full fiscal 2011, income from operations was $248 million versus a loss from operations of $111 million in fiscal 2010.
Financial Performance
Capital expenditures for 2011 was $848 million, which included strategic projects related to coke and coke substitute production, comprising blast furnace coal injection in Europe, a carbon alloy facility at Gary Works and an environmentally advanced coke battery at the Mon Valley Works’ Clairton Plant; heat treat and finishing facilities at Lorain Tubular Operations in Ohio; ongoing implementation of an enterprise resource planning system, and non-discretionary environmental and other infrastructure projects. This compares with capital expenditures of $676 million for 2010.
As of December 31, 2011, U. S. Steel had $408 million of cash and $1.8 billion of total liquidity compared with $578 million of cash and $2.1 billion of total liquidity as of December 31, 2010.
Segmental performance
The Flat-rolled product segment loss from operations for the fourth quarter was $24 per ton compared with income from operations of $53 per ton in the third quarter of 2011, driven largely by lower average realized prices and shipments created by the uncertain economic outlook and increased domestic supply, which perpetuated cautious purchasing patterns early in the quarter.
Fourth quarter prices decreased by $32 per ton to $741 per ton, reflecting lower average realized prices on spot market business as well as index-based contracts. Market-related effects totaled approximately $185 million compared with the third quarter.
U.S. Steel also incurred approximately $20 million in costs related to the ratification of the Hamilton Works labor agreement and associated finishing facility restart costs. Accruals for profit-based payments were down by approximately $30 million in the fourth quarter.
The raw steel capability utilization rate of 75% in the fourth quarter was comparable to the third quarter. For full-year 2011, Flat-rolled segment had operating income of $452 million.
Fourth quarter 2011 results for U.S. Steel Europe (USSE) were lower sequentially, primarily due to lower average realized euro-based prices, production volume and shipments as market demand softened in response to the continuing difficult economic conditions in Europe.
Operating costs also decreased sequentially, reflecting lower raw materials and facility repair and maintenance costs, partially offset by higher energy costs. In response to reduced spot market prices and weak demand, a blast furnace in Serbia remained idled and a blast furnace in Slovakia was taken off-line late in the quarter. As a result, the European raw steel capability utilization rate decreased to 65% for the fourth quarter. For full-year 2011, USSE segment had an operating loss of $162 million.
Tubular’s fourth quarter 2011 results were in line with the third quarter as average realized prices increased to $1,711 per ton and shipments of 482 thousand tons were comparable with the third quarter. Fourth quarter results reflect the continued strong demand for energy-related tubular products.
The fourth-quarter results also reflected increased maintenance outage and repair costs as well as start-up costs for the newly commissioned heat treat and finishing facilities at Lorain Tubular Operations in Ohio. For full-year 2011, Tubular segment had operating income of $316 million.
U.S. Steel Serbia
Effective January 31, 2012, U.S. Steel sold U.S. Steel Serbia d.o.o. to the Republic of Serbia for a nominal purchase price. In addition, U. S. Steel Kosice will receive payment of certain intercompany balances owed by U. S. Steel Serbia for raw materials and support services, subject to adjustment.
U.S. Steel expects to record a total non-cash charge of between $400 and $450 million in the first quarter of 2012, which includes the loss on the sale and a charge of approximately $50 million to recognize the cumulative currency translation adjustment related to the company’s net investment in Serbia.
First Quarter 2012 Outlook
U.S. Steel expects to report a significant improvement in its operating results in the first quarter of 2012 compared with fourth quarter 2011, mainly driven by improved average realized prices and shipments for Flat-rolled segment.
U.S. Steel expects good results for Flat-rolled segment in the first quarter of 2012 as a result of increased average realized prices and shipments, as improving end user demand and lower customer inventories began to significantly improve market conditions late in the fourth quarter of 2011.
Excluding the loss on the sale of U.S. Steel Serbia, the company expects the first quarter 2012 results for European segment to improve sequentially due to the elimination of operating losses associated with Serbian operations. European spot market prices appear to have bottomed and are expected to increase throughout the remainder of the quarter. However, contract prices are expected to decrease compared with the fourth quarter.
First quarter 2012 results for Tubular segment are expected to continue to retain solid performance as the demand for oil country tubular goods (OCTG) and line pipe remain strong. Shipments are expected to increase modestly from the fourth quarter while average realized prices are expected to remain comparable with the fourth quarter.
Overall, shale resource development and oil-directed drilling continue to drive the rig count, while natural gas drilling is being affected by the high levels of natural gas in storage.
Total accounting costs for pension and other benefits plan are expected to be approximately $535 million in 2012 compared with approximately $600 million in 2011. The company’s payments for these plans in 2011 were approximately $630 million, which included a voluntary contribution of $140 million to main defined benefit pension plan.
Our Take
U.S. Steel is an integrated steel producer of flat-rolled and tubular prodand Europe. It competes in North America with international steel giants like ArcelorMittal (MT), BaoSteel, Posco (PKX), Nippon Steel and ThyssenKrupp.
We maintain our Neutral recommendation on U.S. Steel with its quantitative Zacks #3 Rank (short-term Hold rating).
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