Shares of United States Steel Corporation (X) tumbled more than 9% after the company recorded its fourth consecutive loss of $267 million or $1.86 per share in the fourth quarter of 2009. By contrast, the company had reported a net income of $2.90 million or $2.50 per share in the corresponding quarter of the previous year.
Excluding non-recurring charges, net loss totaled $1.65 per share, which was worse than the loss of $1.44 as per the Zacks Consensus Estimate. For the full year 2009, U.S. Steel losses totaled $1,401 million, or $10.42 per diluted share, compared with full year 2008 net income of $2,112 million, or $17.96 per diluted share.
Revenues plunged 25% to $2.9 billion, driven by a significant decline in total steel shipments. The company saw lower volumes and prices across all major segments on the back of a slump in the economy. Additionally, increasing competition from China and weak demand in major markets, especially Europe, resulted in lower capacity utilization and impacted results.
All the three business segments reported losses. However, the losses were lower sequentially at its European operations and North American Flat-rolled business.
Segmental Results
Flat-rolled
Results for the Flat-rolled segment improved from the previous quarter, primarily due to the benefits of higher average realized prices, increased shipments and reduced facility restart costs. Shipments improved 18% to 3.2 million tons while average realized prices increased 5% to $633 per net ton.
In response to increased customer order rates, at the end of the reported quarter, the company operated all of its North American blast furnaces except the Blast Furnace at Gary Works and the one blast furnace at its Lake Erie Works due to labor issues. U.S. Steel also restarted its Keetac iron ore operations.
Raw steel capability utilization rates for the quarter increased to 64% versus 58% in the third quarter. Quarterly results reflected continuing employee and other costs for idled facilities totaling $80 million, primarily at the Lake Erie Works, compared to $165 million in the previous quarter.
U.S. Steel Europe
Results for the U.S. Steel Europe (USSE) segment were slightly lower than the third quarter as USSE continued to operate at or near break-even results. As compared to the prior quarter, the benefits of higher average realized prices were offset by higher costs for raw materials.
Raw steel capability utilization rates decreased to 80% in the quarter versus 82% in the prior quarter, as the impact from a planned maintenance outage for one of three blast furnaces at U.S. Steel Kosice (USSK) was partially offset by increased production at U.S. Steel Serbia.
Shipments decreased 3% to 1.2 million tons while reported average realized prices increased 8% to $664 per net ton.
Tubular Products
The Tubular Products segment returned to profitability with an operating income of $39 million in the reported quarter, a substantial improvement from the earlier quarter. The improvement from third quarter results was mainly due to the benefits of higher shipments, operating efficiencies and the favorable effect of adjustments related to employee lay-off benefits.
Shipments were largely driven by increased demand for alloy and heat treated seamless tubular products, due in part to the continuing development of shale natural gas resources. Shipments increased 37% to 207,000 tons, a significant increase.
U.S. Steel’s Tubular markets continue to be negatively affected by continued high levels of tubular goods inventories created by high amounts of unfairly traded and subsidized imports from China in prior quarters. Average realized prices decreased by less than 1% to $1,462 per net ton. The latest quarterly results reflected continuing employee and other costs for idled facilities totaling approximately $5 million, compared to $25 million in the third quarter of 2009.
As of December 31, 2009, U.S. Steel had $1.2 billion of cash and $2.5 billion of total liquidity as compared to $0.7 billion of cash and $2.1 billion of total liquidity at December 31, 2008.
Management Guidance
Going forward, management expects demand to improve slightly. Higher orders indicate that customers may be replenishing their stockpiles of steel in North America and Central Europe. To meet the demand, U.S. Steel has begun to restart idled mills and raise prices in its Flat-rolled and European businesses.
However, the outlook for overall demand remains uncertain amid the credit crisis and economic slowdown. U.S. Steel still sees each of its businesses posting an operating loss for the upcoming quarter. The company expects to report an overall first quarter 2010 operating loss, in line with the latest quarter.
The company expects improving demand from the end-user markets including automotive, service center, converter and appliance in North America and Europe, while in other markets — such as construction in North America — demand remains soft.
Flat-rolled results for the first quarter of 2010 are expected to benefit from increases in average realized prices and shipments. Average realized prices are expected to increase from the reported quarter.
Overall, raw steel capability utilization rates are expected to increase from the recent quarter. U.S. Steel expects first quarter 2010 results for USSE to benefit from increased shipments, and operating efficiencies are expected to be offset by higher raw material costs.
Read the full analyst report on “X”
Zacks Investment Research
