U.S. Steel (X) Warms Up to Q4 Earnings: A Beat in the Cards?

United States Steel Corporation X is set to release fourth-quarter 2017 results after the bell on Jan 31.

The steel giant recorded net earnings of $147 million or 83 cents per share in third-quarter 2017, compared with $51 million or 32 cents a year ago. Adjusted earnings were 92 cents per share for the quarter that trumped the Zacks Consensus Estimate of earnings of 67 cents.

Net sales rose roughly 20.9% year over year to $3,248 million in the quarter, also surpassing the Zacks Consensus Estimate of $3,042 million.

U.S. Steel beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with an average positive surprise of 607%.

Shares of U.S. Steel have moved up 54.8% in the last three months, outperforming the industry’s 25.9% growth.

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that U.S. Steel is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Zacks ESP: Earnings ESP for U.S. Steel for the fourth quarter is +1.11%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 69 cents and 68 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Steel currently carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

U.S. Steel, during third-quarter earnings call, stated that the company remains focused on revitalizing assets and improving costs. It is witnessing operating improvements in the assets in which it is investing, which makes it reasonably confident to achieve the 2020 improvement targets.

For 2017, U.S. Steel expects net earnings of around $323 million or $1.83 per share, adjusted net earnings of roughly $300 million or $1.70 per share and EBITDA of roughly $1.075 billion, considering market conditions at their current levels.

The Zacks Consensus Estimate for revenues for U.S. Steel for the fourth quarter is $3,067.6 million, reflecting an expected decrease of roughly 5.6% from the third quarter.

Net sales for U.S. Steel’s Flat-Rolled segment is projected to suffer a 6.5% decline from the third quarter, as the Zacks Consensus Estimate for the fourth quarter is pegged at $2,141 million. The Zacks Consensus Estimate for net sales for the U.S. Steel Europe (USSE) unit is pegged at $751 million, reflecting a 5.6% increase from the third quarter. Moreover, the company’s Tubular segment’s net sales for the fourth quarter are expected to decrease by roughly 16.3% from the third, as the Zacks Consensus Estimate is $231 million.

With respect to pricing, the Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for the fourth quarter is pegged at $727 per net ton, which represents marginal decline from $728 per ton registered in the third quarter. The Zacks Consensus Estimate for average realized price for the USSE unit is $641 per net ton, representing an expected 0.3% rise on sequential basis. Average realized price for the Tubular segment is expected to decrease 7.8% sequentially as the Zacks Consensus Estimate is $1,321 per net ton.

Regarding shipments, the Flat-Rolled segment is expected to see a modest decline on a sequentially comparison basis as the Zacks Consensus Estimate stands at 2,520,000 tons for the fourth quarter. The Zacks Consensus Estimate for shipments for the USSE unit is pegged at 1,140,000 tons, reflecting a sequential increase of 6.8%. Shipments for the Tubular segment is expected to decrease 8% sequentially as the Zacks Consensus Estimate is 170,000 tons.

U.S. Steel is actively engaged in improving its cost structure and operations on a sustainable basis through its “Carnegie Way” initiative that includes actions such as manufacturing process/logistics improvements and savings on SG&A costs.

The company also is witnessing robust demand in the automotive space. It sees substantial opportunities in the automotive market and remains focused on bringing more products in this key market.

In September 2017, U.S. Steel and Japan’s Kobe Steel agreed to start construction of a new continuous galvanizing line at their subsidiaries’ joint venture, Pro-Tec Coating Company in Leipsic, OH. The move is in response to growing demand for advanced high-strength steels.

While U.S. Steel’s Flat-Rolled division posted healthy results in the third quarter, the company is still facing certain operational issues in this unit. Increased outage and plant maintenance costs are affecting this division. The company sees maintenance and outage expenses (including those related to asset revitalization) of around $1.3 billion for the Flat-Rolled unit for 2017, higher than $950 million in 2016.

Other Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Agnico Eagle Mines Limited AEM has an Earnings ESP of +20.99% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell Industries N.V. LYB has an Earnings ESP of +0.55% and carries a Zacks Rank #2.

Kinross Gold Corporation KGC has an Earnings ESP of +2.27% and carries a Zacks Rank #3.

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