Shares of U.S. Steel X took a tumble in extended trading yesterday after its third-quarter 2015 results missed expectations. The steel giant posted a net loss of $173 million or $1.18 per share for the quarter, hit by a loss of $53 million related to the shutdown of certain operations at its Fairfield Works in Fairfield, AL, and a $10 million charge associated with its Canadian unit – U. S. Steel Canada (“USSC”). However, losses narrowed from $207 million or $1.42 per share logged a year ago.
Barring one-time items, loss was 70 cents per share in the reported quarter, much higher than the Zacks Consensus Estimate of a loss of 28 cents.
Revenues plummeted 38% year over year to $2,830 million, falling short of the Zacks Consensus Estimate of $3,000 million.
U.S. Steel, once the country’s first billion-dollar corporation, continued to face a difficult steel market environment in the third quarter. U.S. Steel and other domestic steel makers including AK Steel AKS, Nucor NUE and Steel Dynamics STLD are struggling to cope with an influx of low-priced imports. Moreover, lower oil prices are affecting demand for steel in the energy market.
High levels of imports led to lower steel pricing in the quarter, hurting U.S. Steel’s Flat-Rolled segment. Its tubular business was also affected by lower energy prices. These impacts were partly offset by the company’s efforts to improve its cost structure.
U.S. Steel's shares sank around 12% in after-hours trading yesterday. The stock is down roughly 51% so far this year.
Segment Highlights
U.S. Steel’s Flat-Rolled segment posted a loss of $18 million versus a profit of $347 million in the year-ago quarter. Imports of subsidized flat-rolled products remained high during the quarter, thereby reducing spot market prices of steel. Average realized prices fell to $674 per ton in the quarter from $777 per ton a year ago. However, results from the division improved on a sequential basis, aided by the company’s cost-reduction measures and benefits from its Carnegie Way initiative.
The U.S. Steel Europe (“USSE”) segment recorded a profit of $18 million in the reported quarter, down from last year’s profit of $29 million as well as $20 million in the previous quarter. Lower euro-based prices and reduced shipments affected the division’s results.
U.S. Steel’s Tubular segment registered a loss of $50 million in the quarter versus a profit of $69 million a year ago. Lower drilling activity (due to lower energy prices) and significant volumes of tubular imports hurt shipments and pricing in the quarter.
Financials
U.S. Steel exited the quarter with cash and cash equivalents of $1,165 million, down 7% year over year. Long-term debt declined around 1% year over year to $3,127 million. Cash provided by operating activities tumbled 75% year over year to $308 million in the first nine months of 2015.
Outlook
U.S. Steel noted that market conditions are not improving as it had expected in the second half of 2015. High levels of imports have not only put downward pressure on steel selling prices, but also had an unfavorable impact on the rebalancing of supply chain inventories, leading to lower customer order rates in the second half. Moreover, deteriorating conditions in the market for oil country tubular goods are also impacting its flat-rolled and tubular businesses.
Factoring in these issues, U.S. Steel sees significantly lower shipments and average realized prices than what it had earlier predicted for full-year 2015. U.S. Steel added that its cost-saving actions and gains from the Carnegie Way initiative are not yet able to fully mitigate the unfavorable impacts of the headwinds faced by the company. It now envisions adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) for 2015 to be around $225 million.
Nevertheless, CEO Mario Longhi said that the company is making progress on its Carnegie Way program and will remain focused on executing its long-term strategy amid the challenging operating environment. The company sees Carnegie Way benefits of $715 million for 2015.
U.S. Steel currently holds a Zacks Rank #5 (Strong Sell).
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