United States Steel Corporation (X) recorded adjusted net income of $274 million or $1.82 per share in the fourth quarter of 2014, compared with net earnings of $38 million or 27 cents per share posted a year ago. The year-over-year improvement in earnings, which exceeded the Zacks Consensus Estimate of 89 cents, was driven by benefits from the Carnegie Way program.
Including one-time items, net income for the fourth quarter came in at $275 million or $1.83 per share, down 7.4% from net earnings of $297 million or $1.93 per share recorded in the year-ago quarter.
For full-year 2014, U.S. Steel registered record full-year net income since 2008 of $102 million or 69 cents per share, compared with net loss of $1,645 million or $11.37 per share in 2013. The net income in 2014 includes non-cash charges of $574 million or $3.78 per share. Barring that impact, earnings were $4.47 per share, ahead of the Zacks Consensus Estimate of $3.45.
Revenues for the fourth quarter fell roughly 4.6% year over year to $4,072 million, topping the Zacks Consensus Estimate of $3,956 million. For full-year 2014, revenues rose 0.5% from 2013 to $17,507 million, surpassing the Zacks Consensus Estimate of $17,321 million.
Segment Highlights
U.S. Steel’s Flat-rolled segment reported income of $247 million in the fourth quarter, compared with income of $87 million in the year-ago quarter and $347 million in the third quarter of 2014. The sequential downside resulted from increased repairs and maintenance costs of around $100 million. These stemmed from the replacement of a blast furnace at Mon Valley Works and planned blast furnace maintenance projects at Granite City and Great Lakes that resulted in lower operating levels.
Fourth-quarter results for this segment were also negatively affected by high levels of imports. Average realized price and shipments decreased sequentially in the fourth quarter due to weak spot market conditions. Average realized price of $775 per net ton fell 0.3% sequentially and increased 3.3% year over year.
The U.S. Steel Europe (“USSE”) segment recorded a profit of $34 million in the reported quarter, up from last year’s profit of $12 million and $29 million in third-quarter 2014. The profit came on higher shipments, reduced facility repairs and maintenance costs, and lower raw materials costs. Average realized price of $600 per net ton declined 13.3% year over year and 10.6% sequentially.
U.S. Steel’s Tubular segment’s profit increased significantly year over year to $121 million, mainly on the back of higher alloy OCTG shipments and higher average realized prices. Average realized price rose 7.7% year over year and also increased 3.7% sequentially to $1,625 per net ton.
Profit for the Other Businesses segment rose 20% year over year and declined 47.1% sequentially to $18 million.
Financial Condition
U.S. Steel had cash and cash equivalents of $1,354 million as of Dec 31, 2014, compared with $604 million as of Dec 31, 2013, a more than two-fold rise. Long-term debt was $3,120 million as of Dec 31, 2014, down 13.7% from $3,616 million as of Dec 31, 2013. Cash provided by operating activities for 2014 was $1,492 million, a significant jump from $414 million in 2013.
Outlook
U.S. Steel forecasts the Carnegie Way transformation to continue boosting the company’s business and earnings in 2015. The company expects moderate growth in global economy during 2015 with U.S. growth rate at roughly 3% and European region growth rate at roughly 1%. Moreover, global steel demands are related to GDP. U.S. Steel foresees low single-digit growth rate in each of the above regions, which is in line with the World Steel Association’s projections.
U.S. Steel anticipates falling oil prices to have an adverse impact on its Tubular segment results in 2015. This can be a headwind for the Flat-rolled segment too. However, falling oil prices can induce higher spending in consumers, driving flat-rolled demand. The company predicts higher levels of import to sustain in 2015. Earnings in the company’s USSK can be adversely affected by foreign exchange rates.
U.S. Steel has a strong balance sheet and healthy financial status, supported by the Carnegie Way transformation, which can withstand challenging market conditions through 2015.
The company sees adjusted income from operations to be between $550 million and $850 million for 2015 with an adjusted EBITDA in the range of $1.1 billion to $1.4 billion.
U.S. Steel currently carries a Zacks Rank #3 (Hold).
Better-ranked players in the steel and related industry include RTI International Metals, Inc. (RTI), LB Foster Co. (FSTR) and Mechel OAO (MTL), all carrying a Zacks Rank #2 (Buy).
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