U.S. Steel’s (X) losses narrowed in third-quarter 2014 as its sales increased amid stable steel market conditions in the U.S. The improvement came on the back of strong profits in the company’s Flat-rolled unit, supported by its Carnegie Way transformation efforts.

Net loss, as reported, for the quarter was $207 million or $1.42 per share compared with a net loss of $1,791 million or $12.38 per share recorded a year ago.

Barring non-cash charges for strategic actions of $577 million, or $3.88 per diluted share, and gain from the sale of real estate assets worth $45 million, or 30 cents per share, the Pittsburgh-based steel maker posted earnings of $2.16 per share. Earnings exceeded the Zacks Consensus Estimate of $1.18 per share.

Revenues increased 11% year over year to $4,587 million. The top line steered ahead of the Zacks Consensus Estimate of $4,543 million.

Segment Highlights

U.S. Steel’s Flat-rolled segment reported a profit of $347 million in the third quarter compared with $82 million in the year-ago quarter and $30 million in the sequentially prior quarter. Shipments increased both year over year and sequentially as the segment retuned to normal operations in the reported quarter. Reduced repairs and maintenance costs and increased operating efficiencies along with increased shipments led to a favorable impact of approximately $150 million in the third quarter. Average realized prices remained flat with the second quarter, while increasing year over year.  

The U.S. Steel Europe (USSE) segment recorded a profit of $29 million in the quarter contrary to a loss of $32 million posted in the year-ago period. It was below a profit of $38 million reported in the previous quarter. Shipments were lower as compared with the sequentially-prior quarter due to scheduled caster and blast furnace maintenance along with the normal impact of the European holiday season and higher repairs and maintenance costs related to the planned outages. Average realized euro-based prices were essentially flat with the second quarter but declined year over year. The segment benefited from lower iron ore costs in the quarter.

U.S. Steel’s Tubular segment’s profit was $69 million in the reported quarter, up from $47 million in the previous quarter and $49 million in the year-ago quarter. Shipments decreased sequentially due to the indefinite idling of the McKeesport and Bellville plants during the third quarter. Average realized prices increased both sequentially and year over year due to improved pricing and mix.

Profit for the Other Businesses segment was $34 million, up from $14 million reported a year ago and $17 million in the previous quarter.

Financial Condition

U.S. Steel ended the quarter with cash and cash equivalents of $1,257 million, up around 80.3% year over year. Long-term debt was $3,162 million, down 12.6% year over year.

Outlook

Moving ahead, U.S. Steel foresees a decline in income from operations in the fourth quarter of 2014 on a sequential basis due to significantly lower results in its Flat-rolled segment.

In the Flat rolled segment, although results are anticipated to decrease sequentially in the fourth quarter, they are expected to exceed $100 million. The company forecasts repairs and maintenance costs to increase around $150 million as compared with the third quarter primarily due to a reline of a blast furnace at Mon Valley Works and planned blast furnace maintenance projects at Granite City and Great Lakes, which will cut operating levels.

Shipments, which do not include U. S. Steel Canada, are expected to decline by about 10% sequentially and average realized prices are also expected to fall from the third quarter as a result of weaker spot market conditions and lower shipments to end users around the holiday season.

U.S. Steel expects results for its European segment to increase sequentially in the quarter due to increased shipments and reduced facility repairs and maintenance costs as scheduled maintenance was completed in the third quarter. Average realized euro-based prices are expected to decline sequentially due to a shift in product mix.

Tubular results are projected to increase modestly compared with the third quarter. Shipments are expected to be lower due to idling of the McKeesport and Bellville plants. U.S. Steel expects average realized prices to increase from the third quarter due to continued improvement in pricing, including the positive impact of the OCTG case decision, and an enhanced mix.

U.S. Steel currently carries a Zacks Rank #2 (Buy).

Other steel companies with favorable Zacks Rank include Nucor Corporation (NUE), Mechel OAO (MTL) and Steel Dynamics Inc. (STLD). While Nucor sports a Zacks Rank #1 (Strong Buy), Mechel and Steel Dynamics hold a Zacks Rank #2 (Buy).