Locked-out United States Steel Corp. (X) workers mounted a second effort to prevent a ship leaving Hamilton with valuable steelmaking coal. U.S. Steel has not been able to resolve the labor dispute issue at its Hamilton Works plant in Canada for more than six months now. Moreover, the situation does not seem to improve in the near term.
This is the second instance where locked-out workers blockaded the company’s ship, while earlier it was blockaded in March this year. U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe and is currently the tenth largest steel producer in the world with an annual raw steel production capability of 31.7 million tons. It competes with international steel giants like ArcelorMittal (MT), BaoSteel, Posco (PKX), Nippon Steel and ThyssenKrupp.
U.S. Steel is yet to recover from the effects of the global economic downturn, with the company suffering losses in the first quarter of 2011.
The company continues to suffer from high operating costs, with its margins being one of the lowest in the industry. With the American flat-rolled steel division being the biggest source of value for the company, any decrease in the division’s margins would adversely affect the company’s stock price, representing a significant downside to stock value.
U.S. Steel reported first-quarter 2011 net operating loss of 60 cents per share, higher than the Zacks Consensus Estimate of a loss of 38 cents .
However, the loss was a huge improvement over the loss of $1.10 per share in the prior-year quarter.
Revenue in the quarter improved 24.8% year over year to gross $4.9 billion. Results were driven by improved economic conditions and customer demand leading to increased average realized prices, shipments and raw steel capability utilization for the North American and European flat-rolled operations. Increased raw material costs partially offset these factors.
We maintain our Neutral recommendation on United Steel and its quantitative Zacks # 4 Rank (short-term ‘Sell’ rating) on the stock.
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