U.S. Steel Corp. (X) reported a first quarter 2011 net operating loss of 60 cents per share, wider than the Zacks Consensus Estimate for 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.
Operational Performance
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.
Revenue was slightly above the Zacks Consensus Estimate of $4.8 billion.
Total operating expenses increased to $4.95 billion, up from $3.95 billion in the prior-year quarter.
Loss from operations in the first quarter was $91 million, wider than the loss from operations of $57 million in the year-ago quarter.
Retiree benefit expenses increased in the first quarter of 2011 due to a decline in the market-related value of pension plan assets and higher amortization of unrecognized losses, both of which relate to pension plan asset losses experienced in 2008.
Net loss was $86 million in the quarter under review, lower than a net loss of $157 million in the prior-year quarter.
Segmental performance
The Flat-rolled product segment reported an operating loss of $57 million in the first quarter, narrower than the loss of $80 million in the year-ago period.
Average realized prices in the first quarter inched up by $63 per ton to $720 per net ton, Shipments inched up 3% to 4.0 million net tons as customer order rates progressively improved in the quarter.
The U. S. Steel Europe segment reported an operating loss of $5 million, versus a profit of $12 million in the year-ago quarter.
Shipments increased 17% over the prior quarter to 1.4million tons, attributable to increased customer demand, driven by improved economic conditions, reduced imports and lower customer supply chain inventory levels.
The Tubular segment reported an operating profit of $30 million, down from $45 million in the first quarter of 2010.
Shipments increased 10% over the prior quarter to 425 thousand tons. Average realized price decreased $57 to $1,447 per ton.
The Other Business segment posted income from operations of $12 million compared with $10 million in the year-ago period.
Financial Performance
As of March 31, 2011, U. S. Steel had $421 million of cash and $2.0 billion of total liquidity, compared with $578 million of cash and $2.1 billion of total liquidity as of December 31, 2010.
Long-term debt was $3.5 billion versus $3.3 billion as of December 31, 2010 end.
Cash outflow from operating activities of United Steel in the first quarter of 2011 were $17 million, much higher than the outflow of $59 million in the prior-year quarter. Capital expenditure totaled $180 million compared with $125 million in the prior year.
Second Quarter 2011 Outlook
United Steel expects Flat-rolled to post improved results benefiting from higher average realized prices, shipments and production volumes, partially offset by higher raw materials costs, primarily for scrap and coal. Raw materials costs are expected to remain relatively stable, reflecting the company’s iron ore, coal and coke position. Average realized prices are expected to increase from first quarter 2011, benefiting from increasing spot and market-based contract prices throughout the first quarter. Raw steel capability utilization is expected to increase from the first quarter of 2011, as management expects all the blast furnaces to be operational for the majority of the period except for Hamilton Works.
Management expects U.S. Steel Europe results to be in line with the first quarter of 2011 based on increased average realized prices, offset by higher raw materials costs and decreased shipments. Average realized prices are expected to increase from first-quarter 2011. The raw steel capability utilization rate is expected to decrease from the first quarter of 2011 due to reduced spot market demand caused by increased production across Europe and the rising threat of imports.
It also expects all five blast furnaces to operate during the second quarter.
Management expects Tubular operations to be in line with the first quarter as the benefits of increased average realized prices and shipments will be offset by higher costs for Hot-rolled bands supplied by the Flat-rolled segment. Average realized transaction prices are expected to increase from first quarter levels as price increases take effect and product mix improves.
Peer Comparison
AK Steel Holding Corporation (AKS), which competes with United Steel, reported a net profit of $8.7 million, or 8 cents per share in the first quarter of 2011, compared with net income of $1.9 million, or 2 cents per share in the prior- year quarter.
The result outperformed the Zacks Consensus Estimate for a loss of 1 cent per share.
We maintain our Neutral recommendation on United Steel and its quantitative Zacks # 2 Rank (short-term 'Buy' rating).
AK STEEL HLDG (AKS): Free Stock Analysis Report
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