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U. S. Steel Reports 2nd Quarter 2010 Results

07/28/2010 - U.S. Steel reported a net loss of $25 million on net sales of $4.7 billion for the second quarter, and a net loss of $182 million on net sales of $8.6 billion for the first six months of 2010.

United States Steel Corp. reported a net loss of $25 million on net sales of $4.7 billion for the second quarter, and a net loss of $182 million on net sales of $8.6 billion for the first six months of 2010.
 
Second-Quarter Results — Results reflect a considerable improvement over the net losses of $157 million ($1.10 per diluted share) in the previous quarter (Q1-2010) and $392 million ($2.92 per diluted share) in the year-ago second quarter (Q2-2009).
 
"Operating results improved significantly from the first quarter of 2010,” said U. S. Steel Chairman and CEO John P. Surma, commenting on results. “Sequentially, the most notable improvement was in our Flat-rolled segment, which benefitted from increased average realized prices and healthy order rates in most of our markets.  In Europe, we had our second consecutive profitable quarter, and our Tubular segment income from operations more than doubled as compared to the first quarter of 2010."  
 
Income from operations was $198 million, compared to a loss from operations of $57 million in the previous quarter (Q1-2010) and a $465 million loss from operations in the year-ago second quarter (Q2-2009). Operating results were substantially higher than the year-ago second quarter as income from operations improved by $663 million, net sales increased by 120% to $4.7 billion, and shipments increased 100% to 5.9 million tons.  
 
Other items not allocated to segments increased net income for the year-ago second quarter by $49 million (36 cents per diluted share). There were no such items in the first or second quarter of 2010.
 
Net interest and other financial costs included a foreign currency loss that decreased net income by $96 million (62 cents per diluted share), which primarily resulted from the impact of significant weakening of the euro against the U.S. dollar on the accounting remeasurement of an intercompany loan to a European subsidiary, partially offset by gains on Euro-U.S. dollar derivatives activity. This compares to a foreign currency loss that decreased net income by $56 million (39 cents per diluted share) in the previous quarter (Q1-2010) and a foreign currency gain that increased net income by $41 million (31 cents per diluted share) in the year=ago second quarter (Q2-2009).
 
Six-Month Results — The net loss of $182 million compares to a net loss of $831 million for the comparable year-ago period. Net sales of $8.6 billion compare to net sales of $4.9 billion for the comparable year-ago period.
 
The company recorded a $65 million tax provision on its pre-tax loss of $117 million. In accordance with accounting guidance, the tax provision does not reflect any tax benefit for pre-tax losses in Canada and Serbia, which are jurisdictions where the company recorded a full valuation allowance on deferred tax assets.    
 
As of June 30, 2010, U. S. Steel had $947 million of cash and $2.5 billion of total liquidity as compared to $1.4 billion of cash and $2.9 billion of total liquidity at March 31, 2010.  
 
Reportable Segments and Other Businesses — U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $241 million ($41 per ton) in the second quarter of 2010, compared with a loss of $13 million ($2 per ton) in the previous quarter (Q1-2010) and a loss of $510 million ($173 per ton) in the year-ago second quarter (Q2-2009).
 
Flat-rolled results improved significantly from the previous quarter, primarily reflecting the benefits of increases in average realized prices, as well as higher trade and intersegment shipments, lower energy costs and increased production volumes. Partially offsetting these improvements were increased facility repair and maintenance costs, mainly related to approximately $60 million of repair and maintenance costs for the restart of the Lake Erie Works, and higher raw material costs, mainly due to higher prices for purchased coke and scrap.  
 
The Flat-rolled segment’s raw steel capability utilization rate increased to 82% (from 73% the previous quarter) as the company operated all of its steelmaking facilities other than Lake Erie Works.  Adjusting for Lake Erie Works (which restarted steel production late in the second quarter), Flat-rolled operated at 91% of available raw steel capability in the quarter.  
 
Flat-rolled shipments increased by 14% to 4.1 million tons and average realized prices increased by $46 per ton (from Q1-2010) to $700 per ton.  The higher average realized prices were driven by increases in both spot and index-based contract prices, which more than offset the mix impact of increased semi-finished shipments.  Reported spot market prices increased each month this year before moving lower in June.    
 
Second quarter results for U. S. Steel Europe (USSE) improved slightly compared to the previous quarter as the benefit of increases in euro-based transaction prices was substantially offset by increases in raw materials costs.  Shipments decreased by 9% to 1.4 million tons due to reduced spot market customer order rates midway through the quarter.  Reported average realized prices increased by $73 per ton to $687 per ton.  USSE operated at 89% of raw steel capability for the second quarter, slightly higher than the first quarter.
 
Results for Tubular improved significantly from the previous quarter, as the benefits of increases in average realized prices and higher shipments were only partially offset by increased costs for steel substrate (most of which is supplied by the company’s Flat-rolled segment).  Shipments increased 40% to 433,000 tons and the reported average realized price for the segment increased by $107 per ton to $1,496 per ton.  Operating rates continued to increase throughout the quarter in line with demand trends, particularly for alloy oil country tubular goods (OCTG).
 
Second quarter results for Other Businesses improved from the previous quarter primarily due to a second quarter sale of land by the company’s real estate operations.  
 
Outlook — "We expect to report an overall operating profit in the third quarter as the U.S. and European economies continue to work their way through a gradual and uneven recovery process,” said Surma, commenting on U. S. Steel's outlook for the third quarter.  “Operating results are expected to be below the second quarter largely due to a decrease in shipping and production volumes for our Flat-rolled segment, reflecting slower order rates, primarily from spot market customers thus far in the quarter, which likely includes some normal seasonal variations and the impact of shorter lead times; however, reported carbon flat-rolled inventory levels on a months-of-supply basis at North American service centers remain below historical averages and end-user demand appears stable.  Similar market conditions prevail for our European operations."
 
Surma said that the company expects third quarter 2010 results for Flat-rolled to be near break-even levels due to lower trade and intersegment shipments and production volumes, and increased costs for raw materials and energy.  The favorable impact of no more repair and maintenance costs at Lake Erie Works is expected to be offset by increased costs related primarily to planned maintenance work on several blast furnaces and repairs of the raw materials transportation system at Gary Works' blast furnaces.  Surma said that average realized prices for the third quarter are expected to be in line with the second quarter as the benefits of a higher value-added mix of shipments and increased prices for both index-based contracts and recently negotiated contracts offset decreases in spot market prices.  
 
Surma said that third quarter results for USSE are expected to be comparable to the second quarter, with the benefits of higher euro-based transaction prices offset by increased raw materials costs.  “We expect slightly lower shipments due to reduced order rates from our spot market customers and normal seasonal variations,” added Surma.  “In response to these lower order rates, we have idled a blast furnace at U. S. Steel Serbia.  We also have begun planned maintenance work on a blast furnace at U. S. Steel Kosice. “ 
 
Surma said the company expects third quarter results for Tubular to improve as compared to the second quarter, with the benefits of higher average realized prices and decreased costs for steel substrate only partially offset by the impact of lower carbon OCTG and welded line pipe shipments.
 
The company expects results for Other Businesses to be lower in the third quarter due primarily to the second quarter impact of a land sale by the company’s real estate operations.