The leading steel manufacturer in the U.S. and the fifth largest in the world, United States Steel Corp. (X), posted a net loss of 35 cents in the third quarter of 2010. Reported losses narrowed from the year-ago losses of $2.11 per share. The quarter, however, reported a foreign currency gain of 96 cents.
The Zacks Consensus Estimate was pegged at a profit of 22 cents for the third quarter. The lower-than-expected results were attributed to the uncertain economic recovery that is hurting demand for the company’s products.
Quarterly revenues declined 4% to $4.5 billion on a 5% fall in shipments. Revenues, however, matched the Zacks Consensus Estimate. Operating losses of $138 million were significantly lower than last year’s loss of $412 million.
Segment Performance
Flat-Rolled Products posted the highest operating loss of $174 million versus an operating loss of $370 million in the year-ago quarter. The losses were driven by lower shipments, production volumes and average realized prices.
Shipments declined 6% to 3.8 million tons due to lower demand from the construction markets. Average realized prices of $688 per ton reflected a 2% decline from the previous quarter. Increased cost for facility repair and maintenance and higher raw material (coke and iron ore) costs further triggered operating losses in the segment.
The U.S. Steel Europe (USSE) segment was the next in line reporting operating loss of $25 million, compared with an income of $7 million in the year-ago quarter. Higher raw material costs and repairs and maintenance costs led to operating losses in the segment.
Maintenance cost of $3 million was up 50% sequentially. A 9% rise in average realized prices to $748 per ton was offset by a 4% decline in shipments.
Conversely, the Tubular Products segment posted an income from operations of $112 million compared with a loss of $21 million in the year-ago quarter, driven by higher averaged realized prices and lower costs for steel substrate. Prices surged 4% to $1,559. Theses benefits were partially offset by a 3% fall in steel shipments to 422, 000 tons.
The Other Businesses segment posted income from operations of $7 million compared with an income of $5 million in the year-ago period.
Financial Position
Cash and cash equivalents nearly halved to $643 million as of September 30, 2010, compared with $1.2 billion as of December 31, 2009. Debt totaled $3.6 billion as of September 30, 2010.
Outlook
United Steel remains uncertain of the demand pattern in North America and Europe. Flat-rolled and USSE segment results are expected to be in line with the third quarter. Shipments, prices and production volumes are expected to be weak in the fourth quarter. On the other hand, the Tubular segment is likely to continue to exhibit profitability, although lower than the third quarter.
U.S. Steel incurred losses through 2009 as well as in the first nine-months of 2010. Rising supplies from China, low demand from the automotive and residential sectors and rising labor costs are affecting its operations.
Currently, United States Steel is a short term (1 to 3 months) Zacks #4 Rank (Sell).
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