U. S. Steel Reports 4th Quarter, Full-Year 2008 Results
01/28/2009 - United States Steel reports net income of $308 million on net sales of $4,565 million for the fourth quarter, and net income of $2,130 million on net sales of $23.817 billion for the full year 2008.
United States Steel Corp. reported net income of $308 million on net sales of $4,565 million for the fourth quarter, and net income of $2,130 million on net sales of $23.817 billion for the full year 2008.
Fourth Quarter Results—The $308 million net income ($2.65 per diluted share) compares to third-quarter 2008 net income of $919 million ($7.79 per diluted share) and fourth quarter 2007 net income of $35 million ($0.29 per diluted share). Net sales of $4,565 million compare to net sales of $7,312 million in the third quarter, and net sales of $4,535 million in the year-ago fourth quarter.
Other items not allocated to segments included a $150-million pre-tax gain from reversal of a contingent funding obligation resulting from termination of the Clairton 1314B Partnership, partially offset by a $28-million pre-tax charge related to the company’s exit from the drawn-over-mandrel tubular business. These items increased net income by $76 million (65 cents per diluted share). In the previous quarter (3Q08), other items not allocated to segments reduced net income by $79 million (67 cents per diluted share), and in the year-ago fourth quarter, other items not allocated to segments decreased net income by $117 million (98 cents per diluted share).
The company also reported $549 million income from operations, which compares with $1,327 million income from operations in the third quarter of 2008 and $116 million income from operations in the fourth quarter of 2007.
Net interest and other financial costs included an immaterial foreign currency gain related to the re-measurement of an $815-million U.S. dollar-denominated intercompany loan to a European subsidiary and related euro-U.S. dollar derivatives activity. This compares to a foreign currency loss of $39 million (33 cents per diluted share) for these items in the third quarter of 2008.
Full-Year Results—The $2,130 million net income ($18.11 per diluted share) compares with full-year 2007 net income of $879 million ($7.40 per diluted share). Net sales of $23.817 billion compare to net sales of $16.873 billion in 2007.
Income from operations was $3,096 million, which compares to income from operations of $1,213 million for the year 2007.
The annual effective tax rate was higher than previous estimates due to a lower-than-anticipated percentage of total pre-tax earnings generated by our European operations. As a result, the fourth quarter income tax provision included a $55-million adjustment to previously recorded tax expense.
Management Comments—"Although the global economic situation negatively affected fourth quarter results, we had an outstanding year in 2008, with record net sales, income from operations and net income,” said U. S. Steel Chairman and CEO John P. Surma. “Our strategic acquisitions positioned us to realize substantial benefits from strong global market conditions during most of 2008."
Reportable Segments and Other Businesses—U. S. Steel is now reporting the operating results of its iron ore operations as part of its Flat Rolled Segment, effective with the fourth quarter of 2008. The company’s iron ore operations are managed as part of its Flat-rolled segment, which consumes almost all of the iron ore produced. Prior periods have been restated to reflect this change.
U. S. Steel's reportable segments and Other Businesses reported $445 million ($106 per ton) segment income from operations in the fourth quarter, which compares with segment income from operations of $1,461 million ($227 per ton) in the third quarter of 2008 and $257 million ($43 per ton) in the fourth quarter of 2007.
The company’s Flat-Rolled Segment reported significantly lower results than the third quarter, which the company attributes primarily to lower shipments and average realized prices. Net favorable inventory effects of approximately $90 million, primarily from LIFO liquidations, provided a partial offset. The segment operated at 45% of capability in the fourth quarter as several facilities were temporarily idled and operations were reduced at other facilities in response to reduced customer demand. The company idled the Hamilton Works’ hot end in November and idled Granite City Works, Great Lakes Works and Keetac iron ore operations in December.
U. S. Steel Europe (USSE) recorded an operating loss for the fourth quarter, which the company attributes mainly to lower shipments and average realized prices, and a lower of cost or market charge of approximately $30 million related to inventory. Production rates averaged 51% of capability over the quarter as a result of lower customer order rates.
Record fourth quarter Tubular results improved from the third quarter due to favorable markets for tubular products and increased average realized prices.
Outlook—"We expect an operating loss in the first quarter as results continue to reflect the extremely difficult global economic environment,” said Surma, commenting on U. S. Steel's outlook. “We do not know when conditions may improve, but we are well positioned to fully participate in a market recovery when it occurs. In the meantime, we continue aggressive efforts to maximize liquidity and reduce costs and will take additional actions as market conditions warrant."
The company said that it expects Flat-Rolled results to decrease substantially in the first quarter of 2009 (as compared to fourth quarter 2008), due primarily to further declines in shipments resulting from lower customer demand, lower average realized prices, and reduced effects from LIFO liquidations.
The company expects USSE’s first quarter 2009 results to be comparable to the fourth quarter, as lower raw material acquisition costs begin to be reflected in cost of sales. Average realized prices are expected to be lower.
Results for Tubular are expected to decrease significantly in the first quarter as compared to fourth quarter 2008, although the segment is expected to remain profitable. Shipments and average realized prices are expected to decrease in line with market trends.
The company expects capital expenditures to total approximately $740 million for 2009. This total excludes spending for a coke plant to supply Granite City Works by an unrelated third party; this spending is consolidated in the company’s financial results.
The company expects total costs for pension and other benefits plans to be approximately $360 million in 2009, including an increase of approximately $100 million in pension expense primarily as a result of 2008 asset performance. At year-end, the company’s pension plans were underfunded on an accounting basis by approximately $2.0 billion, and other benefits plans were underfunded by approximately $3.1 billion.
Common Stock Repurchase Program—The company repurchased 260,000 shares of U. S. Steel common stock for $14 million during the fourth quarter, bringing total repurchases to 16.3 million shares for approximately $1 billion since the repurchase program was originally authorized in July 2005. As of December 31, 2008, 4.4 million shares remained authorized for repurchase. The company has now suspended repurchases under this program.
