U.S. Steel Reports 1st Quarter Results
04/30/2008 - United States Steel reports net income of $235 million on net sales of $5196 million for the first quarter of 2008.
United States Steel Corp. reported net income of $235 million on net sales of $5196 million for the first quarter of 2008.
The $235 million net income ($1.98 per diluted share) compares to fourth-quarter 2007 net income of $35 million ($0.29 per diluted share), and first-quarter 2007 net income of $273 million ($2.30 per diluted share). Record net sales of $5196 million compare to net sales of $3756 million in the year-ago fourth quarter, and net sales of $4535 million in the previous quarter.
Commenting on results, U. S. Steel Chairman and CEO John P. Surma noted, “Net sales grew to a quarterly record of $5.2 billion and profitability increased substantially from the fourth quarter, reflecting sharp improvements in our Flat-rolled and European segments on strong operating performances and higher shipments and prices.”
The company also reported income from operations of $266 million, compared with income from operations of $116 million in the fourth quarter of 2007, and $346 million in the first quarter of 2007.
Other items not allocated to segments consisted of a (previously disclosed) $45 million pre-tax reserve established as a result of an adverse court ruling involving a power-supply contract, and a $17 million pre-tax charge for inventory transition effects related to the acquisition of U. S. Steel Canada (USSC – the former Stelco Inc.). These items reduced net income by $45 million ($0.38 per diluted share). Items not allocated to segments in the fourth quarter of 2007 decreased net income by $117 million ($0.98 per diluted share).
Net interest and other financial costs in the first quarter included a foreign currency gain that increased net income by $70 million ($0.59 per diluted share) related to the re-measurement of a $1.1 billion U.S. dollar-denominated intercompany loan to a European affiliate, partially offset by euro-U.S. dollar derivatives activity. Net interest and other financial costs will continue to include foreign-currency accounting re-measurement effects, partially offset by the use of euro-U.S. dollar derivatives. At March 31, 2008, U. S. Steel had open euro-U.S. dollar forward sales contracts with a total notional value of approximately $571 million.
Also during the first quarter, the company repurchased 305,000 shares of common stock for $33 million.
Reportable Segments & Other Businesses—The company reported segment income from operations of $327 million ($48 per ton), which compare with segment income from operations of $257 million ($43 per ton) in the fourth quarter of 2007, and $385 million ($76 per ton) in the first quarter of 2007.
Segment income improved significantly from the previous quarter for Flat-rolled, which operated at 92% of capability compared to 82% in the previous quarter. Shipments increased to 4.7 million net tons due to the higher operating rate and the inclusion of full-quarter results for U. S. Steel Canada.
We've made excellent progress in integrating our Canadian facilities, which operated during the first quarter at the highest utilization rate in recent years,” commented Surma.
Prices increased by $19 per net ton to $646, reflecting the initial effects of rapidly increasing spot prices and higher shipments of semi-finished and hot-rolled product, principally from U. S. Steel Canada. Raw materials and energy costs also increased.
Results for U. S. Steel Europe were also substantially improved from the fourth quarter of 2007. Cost efficiencies from a record operating performance of 103% of capability helped offset the rapid rise in raw materials costs. Results also reflected a 253,000 net ton increase in shipments and a $39 per net ton increase in realized prices, including favorable foreign currency effects.
Tubular results decreased from the fourth quarter mainly due to the rapid increases in costs for semi-finished steel, which were not recovered through price increases during the quarter. Results for Other Businesses declined over the quarter due to normal seasonal effects at the company’s iron ore operations in Minnesota.
Outlook—Looking ahead to the second quarter, Surma said, "We expect that segment income from operations will increase substantially compared to the first quarter of 2008, as realized price increases are expected to surpass continuing increases in scrap and other raw-materials costs."
The company expects Flat-rolled results to improve significantly from the first quarter as higher spot prices are realized throughout the quarter. Operating levels and shipments are expected to be comparable to the first quarter, while raw materials and energy costs are expected to increase.
For USSE, the company expects second-quarter results to be higher on increased prices and comparable operating and shipping levels, despite higher raw materials costs. Tubular results are expected to improve over the first quarter, with higher prices and shipments partially offset by further increases in costs, principally for semi-finished steel.
The company expects results for its Other Businesses to increase primarily due to normal seasonal improvements at its Minnesota iron ore operations. The company also expects the annual effective tax rate to be approximately 25%, although some discrete items lowered the rate in the first quarter.
