U.S. Steel (X - Analyst Report) swung to a loss in the first quarter of 2015, hurt by a barrage of cheap steel imports, lower oil prices and a hefty loss on shutdown of its coke making facilities.
U.S. Steel, once the country’s first billion-dollar corporation, faced a challenging operating environment in the quarter, stemming from a flood of steel imports. High levels of imports led to lower volumes and steel pricing in the quarter. The company also saw headwinds from lower oil prices.
U.S. Steel recorded a net loss of $75 million or 52 cents per share in the quarter versus a profit of $52 million or 34 cents per share posted a year ago.
Barring a $65 million loss on facility shutdown, loss was 7 cents per share in the reported quarter. The results missed the Zacks Consensus Estimate of earnings of 26 cents.
Revenues tumbled 26% year over year to $3,272 million, also falling behind the Zacks Consensus Estimate of $3,500 million.
U.S. Steel slashed its profit forecast for 2015 based on the difficult operating backdrop. The steel giant’s shares skid as much as around 9% in extended trading yesterday.
United States Steel Corporation - Earnings Surprise | FindTheCompany
Segment Highlights
Results from U.S. Steel’s Flat-rolled segment were hit by a surge of steel imports in the quarter, most of which were unfairly traded. The division posted a loss of $67 million versus a profit of $85 million in the year-ago quarter and $247 million in the previous quarter. The sequential decline resulted from lower shipments and pricing. Imports accelerated during the quarter, thereby reducing spot market prices of steel.
The U.S. Steel Europe (“USSE”) segment logged a profit of $37 million in the reported quarter, up from last year’s profit of $32 million as well as $34 million in fourth-quarter 2014. The division gained from lower raw materials costs, higher shipments and benefits from the Carnegie Way program, neutralized by currency headwinds and lower pricing.
Profit from U.S. Steel’s Tubular segment plummeted to $1 million from $24 million a year ago and $121 million in the prior quarter. The sequential decline was due to reduced shipments resulting from lower oil prices and significant volumes of steel and tubular imports.
Financials
U.S. Steel ended the quarter with cash and cash equivalents of $1,266 million, up 15% year over year. Long-term debt declined around 14% year over year to $3,124 million. Cash provided by operating activities fell 76% year over year to $136 million in the quarter.
Outlook
Moving ahead, U.S. Steel is faced with significant headwinds from surging imports and oil price slump. CEO Mario Longhi said that imports remains at historically high levels, thereby hurting flat-rolled order rates. Moreover, spot prices of flat-rolled products have tumbled to reach levels below market expectations. Descending oil prices have resulted in lower demand for steel for both finished tubular products and substrate supplied by the Flat-Rolled unit for making tubular products.
U.S. Steel sees reduced steel consumption levels to affect the timing of a rebalance of supply chain inventory levels across flat-rolled and tubular markets. The company, however, envisions that market conditions will improve during the back half of 2015, which is a positive for its Flat-Rolled segment.
Amid a difficult operating environment, U.S. Steel is aggressively pursuing actions to improve its cost structure and boost revenues and earnings on a sustainable basis through its Carnegie Way program. U.S. Steel feels that its Carnegie Way transformation will help it withstand the challenging market conditions.
U.S. Steel cut its adjusted earnings before interest and taxes (EBIT) guidance for 2015 to $115-$315 million from its prior forecast of $550-$850 million. The company also lowered its adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) guidance for 2015 to $700-$900 million from earlier expectations of $1.1-$1.4 billion.
Surging steel imports and oversupply in the industry are pressurizing prices and prospects of domestic steel producers including U.S. Steel, AK Steel (AKS -Analyst Report), Nucor (NUE - Analyst Report) and Steel Dynamics (STLD - Snapshot Report). Moreover, several energy companies are dialing back drilling plans in the face of the oil price slump, thereby affecting demand for steel in the energy market.
The combined impact of the oil meltdown and low-priced imports has forced U.S. Steel to take necessary actions including idling of a number of production facilities, resulting in the layoff of thousands of workers.
U.S. Steel, last month, said that it will temporarily idle a part of its Minnesota Ore Operations at the Minntac iron ore plant in Mt. Iron, MN, to adjust production. The company earlier announced that it will consolidate its North American flat-rolled operations and temporarily halt its operations at Granite City, IL, due to challenging market conditions. U.S. Steel is also temporarily halting production in its Minnesota Ore Operations at its Keetac plant in Keewatin, MN.
U.S. Steel is a Zacks Rank #3 (Hold).
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