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U.S. Steel Reports 2nd Quarter Results

07/30/2008 - United States Steel Corp. reported net income of $668 million on net sales of $6.74 billion for the second quarter, and net income of $903 million on net sales of $11.94 billion for the first half of 2008.

United States Steel Corp. reported net income of $668 million on net sales of $6.74 billion for the second quarter, and net income of $903 million on net sales of $11.94 billion for the first half of 2008.
 
Second Quarter Results—The $668 million net income ($5.65 per diluted share) compares to first quarter 2008 net income of $235 million ($1.98 per diluted share), and second quarter 2007 net income of $302 million ($2.54 per diluted share). The $6.74 billion net sales compare to net sales of $5.2 billion in the previous quarter, and net sales of $4.23 billion in the second quarter of 2007.
 
Income from operations, $954 million, was more than triple the company’s first-quarter 2008 income of $266 million, and more than double last year's second quarter income of $391 million.
 
Management Comments—"We recorded the highest quarterly sales and net income in U. S. Steel's history during the second quarter as all three reportable segments posted record results, reflecting strong operating performance and favorable global pricing dynamics," said U. S. Steel Chairman and CEO John P. Surma, commenting on results.
 
Items not allocated to segments included a charge for inventory transition effects related to the acquisition of U. S. Steel Canada (USSC) that reduced net income by $4 million (3 cents per diluted share). Other items not allocated to segments reduced net income by $45 million (38 cents per diluted share). In the second quarter of 2007, net interest and other financial costs included a $23 million pre-tax charge related to the early redemption of debt, which reduced net income by $14 million (12 cents per diluted share).
 
Foreign currency effects related to the remeasurement of a U.S. dollar-denominated intercompany loan to a European affiliate were largely offset by euro-U.S. dollar derivatives activity during the second quarter. This compares to a foreign currency gain of $70 million (59 cents per diluted share) for these items in the first quarter of 2008. At June 30, 2008, U. S. Steel had open euro-U.S. dollar forward sales contracts with a total notional value of approximately $614 million. In early July, the outstanding balance on the intercompany loan was reduced from $1.1 billion to $836 million.
 
The company also repurchased 320,000 shares of common stock for $52 million during the second quarter.
 
Reportable Segments and Other Businesses—U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $959 million ($136 per ton),which compares with $327 million ($48 per ton) in the first quarter of 2008 and $434 million ($79 per ton) in the second quarter of 2007.
 
The company said that significant increases for all three reportable segments resulted primarily from substantial price increases, which outpaced increases in raw materials costs. Shipments for all segments were also at record levels for the quarter, with strong operating results. Raw steel capability utilization, up slightly from the first quarter, was 92.7% in North America, including 101.1% for the company’s Canadian operations, and 104.3% in Europe.
 
Outlook—"We expect another excellent quarter with continued earnings improvement as price increases implemented during the second quarter and early in the third quarter are expected to improve average realized prices for each of our reportable segments,” said Surma, commenting on U. S. Steel's outlook for the third quarter.
 
For Flat-rolled, the company expects third-quarter results to improve substantially from the second quarter, reflecting continued realization of price increases. The company also expects raw steel capability utilization and shipments to remain near second quarter levels, and raw materials costs are expected to increase.
 
The company expects third-quarter results to decrease for U. S. Steel Europe (USSE). While average realized prices should be higher, the company expects that raw materials costs will also increase. The company also said that shipments and operating costs will be negatively affected by a planned blast furnace reline at U. S. Steel Kosice that is scheduled to begin shortly and continue into the fourth quarter.
 
For Tubular, the company expects third quarter results to increase significantly as price increases continue to be realized. The company said that semi-finished steel costs will increase and shipments are expected to remain at about the second-quarter level.
 
The company also said that it is currently negotiating with the United Steelworkers for a replacement of the agreement covering most of its domestic operations, and that it expects to have the new agreement in place before the current agreement’s September 1 expiration.