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U. S. Steel Posts $73 Million Net Loss in First Quarter
04/30/2013 - As it reported its first quarter earnings, U. S. Steel projected flat-rolled market conditions in North America for the second quarter to be comparable to the first quarter.
United States Steel Corporation reported a first quarter 2013 net loss of US$73 million compared to a fourth quarter 2012 net loss of US$50 million and a first quarter 2012 net loss of US$219 million. Adjusted net loss for the first quarter 2013 was US$51 million, excluding an after-tax charge of US$22 million related to repurchases of US$542 million principal amount of its 4.00% senior convertible notes due 2014, reducing the outstanding principal amount for these notes to US$321 million. Adjusted net loss for the fourth quarter 2012 was US$59 million, excluding a US$9 million favorable settlement related to a supplier contract dispute. Adjusted net income for the first quarter 2012 was US$110 million, excluding a US$399 million loss on the sale of U. S. Steel Serbia (USSS); a US$58 million gain on the sale of transportation assets; and a US$12 million gain on property tax settlements.
Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Total reportable segment and Other Businesses operating results improved compared to the fourth quarter of 2012 despite the difficult global economic environment and very competitive steel market conditions."
The company reported first quarter 2013 reportable segment and Other Businesses income from operations of US$94 million, or US$17 per ton, compared to income from operations of US$59 million, or US$11per ton, in the fourth quarter of 2012 and income from operations of US$295 million, or US$52 per ton, in the first quarter of 2012.
Net interest and other financial costs in the first quarter of 2013 includes a US$34 million pre-tax charge related to repurchases of US$542 million principal amount of our 4.00% Senior Convertible Notes due 2014. Additionally, net interest and other financial costs includes a foreign currency remeasurement loss of US$9 million, or US$0.06 per diluted share.
For the first quarter 2013, U. S. Steel recorded a tax provision of US$7 million on its pre-tax loss of US$66 million. The tax provision does not reflect any tax benefit for pre-tax losses in Canada, which is a jurisdiction where it has recorded a full valuation allowance on deferred tax assets.
As of 31 March 2013, U. S. Steel had US$733 million of cash and US$2.5 billion of total liquidity compared to US$570 million of cash and US$2.4 billion of total liquidity at 31 December 2012.
Reportable Segments and Other Businesses
Flat-rolled segment results were slightly lower than the fourth quarter primarily due to increased operating costs. Shipments for the first quarter increased slightly versus the fourth quarter while average realized prices were comparable. Lead times throughout the first quarter of 2013 remained short and afforded buyers the opportunity to limit their order book exposure, preventing upward movement in spot market prices. Higher operating costs in the first quarter reflect the absence of several smaller favorable fourth quarter items partially offset by lower raw materials costs and decreased repairs and maintenance costs in the first quarter.
First quarter results for the European segment improved compared to the fourth quarter due to a significant increase in shipments. Shipments increased due to additional value-added volume and improved spot market activity associated with service center and distributor restocking. Average realized prices were comparable to the fourth quarter as increased spot market prices were offset by a higher mix of hot-rolled shipments and the effect of lower firm contract prices. Operating costs increased due primarily to higher raw materials costs.
First quarter results for the Tubular segment improved compared to the fourth quarter due to decreased operating costs and increased shipments partially offset by lower average realized prices. Shipments increased as distributors began replenishing inventory while prices were lower due to the available supply of tubular products and decreased drilling activity. Operating costs decreased primarily due to improved operating efficiencies, decreased repairs and maintenance costs and lower substrate costs.
Outlook
Commenting on U. S. Steel's outlook for the second quarter, Surma said, "We expect total reportable segment and Other Businesses operating results to be near breakeven. Results for our Tubular segment are projected to be comparable with the first quarter; however we expect lower results from our Flat-rolled and European segments."
While we project North American flat-rolled market conditions for the second quarter to be comparable to the first quarter, we expect an operating loss for our Flat-rolled segment primarily due to higher operating costs. Operating costs are projected to increase due primarily to higher repairs and maintenance costs as well as higher natural gas costs offset by lower raw materials costs. Repairs and maintenance costs are projected to be US$75 million higher in the second quarter due to maintenance projects already largely completed at Gary Works and Lake Erie Works. Average realized prices, including the effect of a more favorable product mix, are expected to be comparable to the first quarter while shipments are projected to decrease slightly. The labor agreement covering our Lake Erie Works expired on 15 April 2013 and a successor agreement has not been reached. U. S. Steel Canada implemented a lockout of represented employees effective 28 April 2013.
Second quarter results for our European segment are projected to decline compared to the first quarter due to higher raw materials costs, primarily iron ore. Shipments and average realized euro-based prices are expected to be comparable to the first quarter as decreases in spot market prices are expected to be offset by the positive effect of a higher volume of value-added shipments.
We expect second quarter results for our Tubular segment to be comparable to the first quarter. Shipments are expected to increase compared to the first quarter to support a higher level of drilling activity while average realized prices are projected to be slightly lower, mainly due to increased shipments of welded product. Operating costs are expected to decrease due to operating efficiencies related to higher production volumes.
Operating profit from Other Businesses is expected to increase approximately US$30 million due to a real estate sale expected to occur in the second quarter.
We expect a minimal tax provision/benefit in the second quarter primarily due to the full valuation allowance on deferred tax assets in Canada.
