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U. S. Steel Reports 2011 3rd Quarter Results
10/26/2011 - United States Steel Corp. reported third quarter 2011 net income of $22 million, or $0.15 per diluted share, compared to a second quarter 2011 net income of $222 million, or $1.33 per diluted share, and a Q3 2010 net loss of $51 million, or $0.35 per diluted share.
United States Steel Corp. reported third quarter 2011 net income of $22 million, or $0.15 per diluted share, compared to a second quarter 2011 net income of $222 million, or $1.33 per diluted share, and a third quarter 2010 net loss of $51 million, or $0.35 per diluted share.
Other third quarter highlights include:
- Adjusted net income of $118 million, or $0.72 per diluted share, excluding $96 million of net foreign currency losses, primarily related to the accounting remeasurement of the intercompany loans
- Segment income from operations of $295 million, reflecting a strong performance by its Flat-rolled segment and its Tubular segment's best results since the fourth quarter of 2008
- Shipments of 5.5 million tons and net sales of $5.1 billion were in line with second quarter 2011
- Operating results and net sales reflect a significant improvement from the third quarter of 2010
- Maintained strong liquidity position with $270 million of cash and $1.9 billion of total liquidity.
U. S. Steel Chairman and CEO John P. Surma said, "Our Flat-rolled segment made more than $200 million despite the challenges of a less-than-robust economy in North America. Tubular segment results improved significantly compared to the second quarter, driven by increased shipments, improved average realized prices, and lower substrate costs. U. S. Steel Europe results continue to reflect the difficult economic situation in Europe, particularly in Southern Europe."
The company reported third quarter income from operations of $199 million, compared to income from operations of $300 million in the second quarter of 2011 and a loss from operations of $138 million in the third quarter of 2010.
U. S. Steel Canada's United Steelworkers-represented employees at the company’s Hamilton Works ratified a new three-year labor agreement on October 15, 2011. The terms of the agreement include, among other provisions, closing the defined benefit pension plan to new employees and the elimination of cost of living indexing for current and future participants.
U. S. Steel's reportable segments and Other Businesses reported income of $295 million, or $54 per ton, in the third quarter of 2011, compared with income of $396 million, or $72 per ton, in the second quarter of 2011 and a loss of $65 million, or $12 per ton, in the third quarter of 2010.
Flat-rolled income from operations for the third quarter was $53 per ton compared to $95 per ton in the second quarter. According to U. S. Steel, the decrease was driven largely by lower average realized prices due to weaker spot market prices and volume, reflecting increased capacity in the United States as well as the effects of high import levels that continued to arrive.
Costs for raw materials remained stable, reflecting its iron ore, coal and coke positions. While the company continued to operate Hamilton Works' coke batteries, the iron and steelmaking and finishing facilities remained idled throughout the quarter due to the labor dispute that was resolved in October. The company incurred approximately $40 million in idle facility carrying costs in both the second and third quarters of 2011. The raw steel capability utilization rate in the third quarter was 74% for the Flat-rolled segment, a decrease of 7% from the second quarter. Excluding Hamilton Works, the raw steel capability utilization was 81% for the third quarter.
Third quarter 2011 results for U. S. Steel Europe (USSE) were lower than the second quarter of 2011 primarily due to lower average realized prices as a result of a weaker spot market caused by the difficult economic conditions in Europe, particularly Southern Europe. Raw materials costs were in line with the second quarter and other operating costs decreased primarily related to reduced maintenance and outage spending partially offset by increased energy costs. The company recorded lower of cost or market inventory charges of approximately $15 million in the third quarter compared to approximately $10 million in the second quarter.
The company says that it continues to face particular challenges in Serbia, including complete reliance on purchased coke, a less favorable product mix, a slower recovery in the Balkan region, and pressure from lower-priced imports. In response to reduced spot market prices and weak demand, a blast furnace in Serbia that was idled during the second quarter remained idled throughout the third quarter and its European raw steel capability utilization rate for the third quarter decreased to 71%.
Tubular results improved significantly from the second quarter of 2011 and represented the Tubular segment's most profitable quarter since the fourth quarter of 2008. Average realized prices increased by 9% to $1,699 per ton and shipments increased by 13% to 481,000 tons as demand for energy-related tubular products rose during the quarter, primarily due to the continued strength of horizontal oil-directed drilling. The improved results also reflected lower substrate costs in the form of hot-rolled bands supplied by the Flat-rolled segment.
Outlook – Commenting on U. S. Steel's outlook for the fourth quarter, Surma said, "Our Tubular operations are expected to have another strong performance as operating results are expected to be in line with the third quarter. We expect to report lower operating results in the fourth quarter for our North American Flat-rolled and European operations as a result of the slow and uneven economic recovery in those regions."
The company expects its Flat-rolled results to reflect an operating loss in the fourth quarter. Average realized prices and shipments are expected to decline as a result of cautious purchasing patterns created by the uncertain economic outlook and increasing domestic supply. The expected lower fourth quarter prices reflect lower average realized prices on spot market business and the company’s index-based contracts, which will incorporate the decrease from the second to the third quarter in published market price assessments. The company expects these market factors to bring operating results down to around a break-even level prior to the effects of increased maintenance outages and Hamilton Works' labor agreement and facility restart costs.
With reduced capacity utilization due to market conditions, the company is taking the opportunity to perform maintenance outages, resulting in additional costs of approximately $50 million compared to the third quarter. With the ratification of a new three-year labor agreement at Hamilton Works on October 15, 2011, it expects to restart the steel finishing facilities in a staged process late in the fourth quarter. In addition to the idled facility carrying costs, the company expects to incur approximately $30 million in costs related to the ratification of the Hamilton Works labor agreement and associated facility restart costs. U. S. Steel will continue to adjust its operating configuration in response to market demand.
The company expects the fourth quarter results for its European segment to decrease compared to the third quarter 2011. Shipments and average realized prices are expected to decline as market demand softens in response to the uncertain economic conditions in Europe, particularly Southern Europe. Operating costs are expected to decrease compared to the third quarter, reflecting lower spending and lower raw materials costs. The idled blast furnace at U. S. Steel Serbia is not expected to operate during the fourth quarter.
Tubular fourth quarter 2011 results are expected to be in line with the strong performance achieved in the third quarter as the demand for oil country tubular goods (OCTG) remains strong. Average realized prices are expected to be comparable to the third quarter and shipments are expected to be slightly lower as distributors actively control their inventory levels going into year end, particularly for non-OCTG products.
United States Steel Corp., headquartered in Pittsburgh, Pa., is an integrated steel producer with major production operations in the United States, Canada, and Central Europe and an annual raw steelmaking capability of 31.7 million net tons. The company manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and gas industries.
