United States Steel Corporation (X) came out with positive results in the first quarter of 2012, posting adjusted earnings of 67 cents per share and beating the Zacks Consensus Estimate of 49 cents.
However, net loss (as reported) widened roughly two-and-a-half-fold year over year to $219 million (or $1.52 per share) from $86 million or 60 cents reported a year ago.
Operational Performance
Revenues in the quarter improved 6.3% year over year to $5.2 billion, above the Zacks Consensus Estimate of $4.9 billion.
U.S. Steel’s reportable segments and Other Businesses reported income of $295 million, or $52 per ton, in the first quarter of 2012, compared with income of $4 million, or $1 per ton, in the first quarter of 2011.
U.S. Steel reported loss from operations of $73 million in the quarter compared with a loss from operations of $91 million a year-ago.
Financial Performance
As of March 31, 2012, U. S. Steel had $652 million of cash and $2.5 billion of total liquidity compared with $421 million of cash and $2 billion of total liquidity as of March 31, 2011.
These figures include net proceeds from the issue of $400 million of 7.50% Senior Notes due 2022, which the company had issued in March. U.S. Steel used the bulk of the proceeds from the issuance in April towards redeeming all of its $300 million of 5.65% Senior Notes due 2013, for a total payment of $324 million. Of this, $18 million represents a make-whole redemption premium that will be recorded as interest expense in the second quarter of 2012.
Segmental performance
The Flat-rolled product segment fared better this time and improved considerably from last year. The improvement was driven by higher average realized prices, which increased by $44 per ton to $764 per ton in the quarter.
Moreover, shipments were 4.1 million net tons in the quarter, the highest since the third quarter of 2008. The increased shipments were a result of better demand from end users and inventory restocking by spot customers.
The bump in shipments and rise in prices was well-complemented by a decrease in operating costs in the quarter, primarily due to operating efficiencies and reduced energy and facility maintenance costs. A capacity utilization of 83% in the quarter, as compared with 77% last year, helped the company in bringing down costs.
All these factors enabled the Flat-rolled segment to post income from operations of $183 million in the first quarter of 2012, as against loss of $36 million posted in the year ago period.
Excluding the loss incurred on the sale of U.S. Steel Serbia, results from U.S. Steel Europe (“USSE”) improved on a sequential basis but losses widened from last year. Total operating loss from the region came in at $34 million (including $17 million of operating losses at Serbian operations before its sale), down from $89 million incurred in the fourth quarter of 2011 but higher than the $5 million loss incurred in the year-ago period.
Average realized prices declined considerably to $749 per ton in the quarter from $823 per ton last year. However, the company saw constant improvement in spot market prices in the quarter due to the emergence of a small restocking cycle. U.S. Steel completed the maintenance work on a blast furnace in Slovakia and it was restarted late in January, thereby pushing up its raw steel capability utilization rate for U.S. Steel Kosice to 92% in the quarter from 75% in the fourth quarter of 2011.
Tubular‘s first quarter 2012 results improved from last year as average realized prices increased to $1,727 per ton in the quarter from $1,447 per ton last year and shipments of 529 thousand tons were ahead of shipments of 425 thousand reported last year. First quarter results reflect better demand for oil country tubular goods.
As a result, the Tubular segment reported income from operations of $129 million in the first quarter, significantly up from income of $32 million posted last year.
Divestiture
U.S. Steel completed the divestiture of U.S. Steel Serbia on January 31, 2012, to the Republic of Serbia for a nominal purchase price. The company recorded a $399 million after-tax loss on account of this transaction.
Second Quarter Outlook
The company expects all three of its segments to report positive results in the second quarter with total segment results in line with the first quarter. Improvement in average realized prices is expected to show in the next quarter with its European segment expected to report positive income.
The Tubular segment is expected to do well once again with results expected to be consistent with the first quarter. However, higher maintenance costs are expected to have an impact on the Flat-rolled segment.
Our Take
U.S. Steel competes with ArcelorMittal (MT) and POSCO (PKX). Currently, we have a long-term (more than 6 months) Neutral recommendation on the stock. The company currently holds a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.
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