U.S. Steel (X) Misses Q3 Earnings and Sales Estimates

U.S. Steel X reported net earnings of $51 million or 32 cents per share in the third quarter of 2016, as against a net loss of $173 million or $1.18 per share a year ago.

Barring one-time items, earnings were 40 cents per share for the reported quarter that missed the Zacks Consensus Estimate of 88 cents.

Revenues slipped roughly 5.1% year over year to $2,686 million in the third quarter, and missed the Zacks Consensus Estimate of $2,839 million.
U.S. Steel’s third-quarter results improved significantly from the prior quarter on improvement across its business segments, leading to the highest quarterly segment income since fourth-quarter 2014

Segment Highlights

U.S. Steel’s Flat-Rolled segment recorded a profit of $114 million against a loss of $18 million in the year-ago quarter. The results in the reported quarter improved sequentially on higher spot and contract prices. Further, the benefits from better product mix and the company’s Carnegie Way initiatives supported the results. Shipments in the quarter were hurt by about 125,000 tons as a result of unplanned outages.

The U.S. Steel Europe (“USSE”) segment posted a profit of $81 million in the reported quarter, higher than $18 million recorded a year ago. The results improved compared to the second quarter owing to higher average realized euro-based prices, partly offset by elevated iron ore costs. Gains from the company’s Carnegie Way initiative continue to drive operating margins.

U.S. Steel’s Tubular segment registered a loss of $75 million in the quarter, wider than a loss of $50 million a year ago. Third-quarter results improved compared to the second quarter, but reflect the challenges of operating at very low utilization rates amid a low pricing environment.

Financials

U.S. Steel exited the quarter with cash and cash equivalents of $1,445 million, down 24% year over year. Long term debt decreased by 4.4% year over year to $2,988 million. The company generated operating cash flow of $577 million for the nine months ended Sep 30, 2016.

Outlook

U.S. Steel noted that operational issues remain a headwind, as it continues to recover from unplanned outages in the third quarter, while also completing the planned maintenance outages. The company plans to utilize its strong cash and liquidity position to speed up the revitalization of its facilities and to fund additional growth projects.

If market conditions remain at their current levels, the company expects net loss of about $355 million, or $2.26 per share, and adjusted EBITDA of roughly $475 million in 2016. The results for its Flat-Rolled and European segments are anticipated to be higher than 2015 results while results for its Tubular segment are forecast to be lower than 2015 results.

The company expects to be cash positive for 2016, including net proceeds from its equity offering of $482 million and about $500 million of cash benefits from working capital improvement in 2016, mainly associated with better inventory management. The company forecasts improved results for other businesses and about $52 million of post-retirement benefit income.
The company anticipates the market conditions to change, and as changes occur during the remainder of 2016, its net loss and adjusted EBITDA should change consistent with the pace and magnitude of changes in market conditions.

Zacks Rank

U.S. Steel carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the basic materials space include POSCO PKX, sporting a Zacks Rank #1 (Strong Buy), and ArcelorMittal MT and Ryerson Holding Corporation RYI, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

POSCO has an expected earnings growth rate of 914.3% for the current year.

ArcelorMittal has an expected earnings growth rate of 364.8% for the current year.

Ryerson Holding has an expected earnings growth rate of 202.2% for the current year.

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