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U.S. Steel Reports 3rd Quarter Results
10/31/2007 - United States Steel reports net income of $269 million on net sales of $4.35 billion for the third quarter, and net income of $844 million on net sales of $12.34 billion for the first nine months of 2007.
United States Steel Corp. reported net income of $269 million on net sales of $4.35 billion for the third quarter, and net income of $844 million on net sales of $12.34 billion for the first nine months of 2007.
Third Quarter Results—The $269 million net income ($2.27 per diluted share) compares to second-quarter 2007 net income of $302 million ($2.54 per diluted share), and third-quarter 2006 net income of $417 million ($3.42 per diluted share). Income from operations was $360 million, which compares with income from operations of $391 million in the second quarter of 2007, and $561 million in the third quarter of 2006.
Results included several items that are not allocated to segments, including a $27-million pre-tax charge related to inventory acquired in the Lone Star acquisition. The tax provision included several discrete charges totaling $11 million. These charges and the item not allocated to segments reduced net income by $28 million (23 cents per diluted share).
In the previous quarter (second quarter of 2007), net interest and other financial costs included a $23-million pre-tax charge related to the early redemption of the company’s 9.75% Senior Notes due 2010, which reduced 2Q-06 net income by $14 million (12 cents per diluted share). Items not allocated to segments in the third quarter of 2006—employee severance and benefit charges for a workforce reduction of over 20 percent at the company’s Serbian operations—reduced net income by $21 million (17 cents per diluted share).
Management Comments—"We had a good quarter as each of our segments effectively responded to diverse challenges, including general economic concerns that affected our major markets,” said U. S. Steel Chairman and CEO John P. Surma. “We made good progress in implementing a unified business model for our Tubular segment and are realizing synergies from the Lone Star acquisition.”
The company repurchased 285,000 shares of common stock for $28 million during the third quarter.
Reportable Segments and Other Businesses—U. S. Steel's reportable segments and Other
Businesses reported segment income from operations of $433 million ($78 per ton), which compares with $434 million income from operations ($79 per ton) in the second quarter of 2007, and $652 million income form operations ($117 per ton) in the third quarter of 2006.
Flat-rolled income from operations improved for the third consecutive quarter, despite a $9 per ton decrease in average realized prices and higher raw material costs compared to the second quarter. The company attributes improved results to higher operating rates (including hot rolled band shipments to support Tubular), and lower outage and energy costs.
The company attributes the decrease in European operating results to lower shipments related to outages, increased raw material costs and higher unit costs resulting from lower raw steel capability utilization.
Tubular operating results also declined, which the company said is due mainly to lower prices, the effects of integrating Lone Star into the U. S. Steel supply chain, and establishing the company’s unified business model. Distributor inventories and imports remained high.
Results for Other Businesses improved from the second quarter largely as a result of lower outage costs at iron ore operations, said the company.
Outlook—"We expect a decline in overall results for the fourth quarter, mainly due to normal seasonal effects and several scheduled blast furnace outages,” said Surma. “North American flat-rolled inventories and imports are at relatively low levels, and over time the weaker U.S. currency should favor many of our steel-consuming customers. In Europe, steel consumption remains healthy; however, high imports, particularly from China, and high service center inventories are resulting in some pressure on spot prices and order rates."
For Flat-rolled, Surma said the company expects fourth-quarter results to decrease from the third quarter due primarily to lower shipments and higher raw material, outage and modernization-related costs. Prices are expected to remain in line with the third quarter.
The company also expects fourth quarter results to decrease for U. S. Steel Europe (USSE), with prices and shipments most likely remaining comparable to third-quarter levels and costs likely to increase slightly. Two planned blast furnace outages will continue to limit raw steel production.
Surma also said the company is commencing a voluntary early retirement program at U. S. Steel Kosice (USSK) as part of its efforts to increase productivity for that unit. The company expects the early retirement program to generate substantial future cost savings, but will not know the employee response to this program (or the amount of the resulting fourth quarter charge) until later this year.
The company expects fourth-quarter results for Tubular to be consistent with third-quarter results. Average realized prices and costs expected to improve and shipments expected to decrease, due primarily to continued high inventory levels and year-end seasonal effects.
The projected fourth quarter outlook does not include Stelco operations, which the company is on track to acquire later this week. The Stelco shareholders have approved the transaction and required regulatory approvals have been obtained. The company expects to complete this transaction and commence the integration later this week, and will ultimately incorporate Stelco results into Flat-rolled segment results (as of the date of the acquisition).
