U. S. Steel Reports Highest Segment Operating Results Since Q3 2008
10/29/2014 - While reporting its quarterly earnings results, U. S. Steel said progress on its Carnegie Way initiative has so far exceeded expectations in its multi-year journey.
United States Steel Corporation reported a third quarter 2014 net loss of US$207 million, or US$1.42 per diluted share, compared to a third quarter 2013 net loss of US$1,791 million, or US$12.38 per diluted share, and a second quarter 2014 net loss of US$18 million, or US$0.12 per diluted share. Adjusted net income for the third quarter of 2014 was US$325 million, or US$2.16 per diluted share. This excludes non-cash charges for strategic actions of US$577 million, or US$3.88 per diluted share, as well as a US$45 million, or US$0.30 per diluted share, gain on the sale of real estate assets.
Commenting on results, U. S. Steel president and chief executive officer Mario Longhi said, "We experienced a significant improvement in Total reportable segments and Other Businesses income from operations in the third quarter, the highest level since the market peak in 2008. Steel market conditions in the U.S. have remained stable and our operations have performed well, particularly our Flat-rolled segment, where we returned to more normal operating levels and income from operations increased by over US$300 million from the second quarter. Our results reflect the significant improvement in our earnings power from our Carnegie Way transformation efforts."
The US$479 million, or US$94 per ton, of Total reportable segment and Other Businesses income from operations for the third quarter of 2014 compares to income from operations of US$132 million, or US$26 per ton, in the second quarter of 2014 and income from operations of US$113 million, or US$24 per ton, in the third quarter of 2013.
Other items not allocated to segments in the third quarter of 2014 consisted of pre-tax non-cash charges for strategic actions totaling US$649 million and a US$55 million gain on the sale of real estate assets.
As of September 30, 2014, U. S. Steel had US$1.3 billion of cash and US$3.0 billion of total liquidity. Cash provided by operating activities was US$1.2 billion in the first nine months of 2014 primarily due to improved results and working capital management.
Reportable Segments and Other Businesses
We continue to realize increasing benefits and improving earnings power from our Carnegie Way transformation across all of our segments.
Results for our Flat-rolled segment improved significantly from the second quarter. Shipments increased as we returned to normal operations in the third quarter, while the relatively flat market conditions during the quarter resulted in average realized prices that were consistent with the second quarter. There was a favorable impact of approximately US$150 million in the third quarter from reduced repairs and maintenance costs and increased operating efficiencies along with the increased shipments. Operating costs also reflected a decrease in energy costs. Additionally, third quarter results included a US$20 million operating loss for U. S. Steel Canada for the period prior to its CCAA filing on 16 September 2014.
We reported decreased results for our European segment as compared to the second quarter. Scheduled caster and blast furnace maintenance along with the normal impact of the European holiday season resulted in lower shipments and higher repairs and maintenance costs related to the planned outages. These negative impacts were partially offset by a decrease in raw materials costs, primarily for iron ore. Average realized euro-based prices were in line with the second quarter.
Tubular segment results improved as compared to the second quarter. Shipments decreased, due to the indefinite idling of the McKeesport and Bellville facilities during the third quarter, while average realized prices increased due to improved pricing and mix.
Outlook
Commenting on U. S. Steel's outlook for the fourth quarter, Longhi said, "Our Carnegie Way progress so far has exceeded our expectations in this multi-year journey. We expect to continue to see increasing benefits from our Carnegie Way transformation which focuses on building stockholder value. We expect fourth quarter segment income from operations to decrease compared to the third quarter primarily due to significantly lower results for our Flat-rolled segment. Results for our European and Tubular segments are expected to improve slightly compared to the third quarter."
Fourth quarter results for our Flat-rolled segment are expected to decrease significantly compared to the third quarter but are expected to exceed US$100 million. Overall, repairs and maintenance costs are expected to increase by approximately US$150 million as compared to the third quarter due primarily to a reline of a blast furnace at Mon Valley Works and planned blast furnace maintenance projects at Granite City and Great Lakes, which will result in lower operating levels. Shipments, which no longer include U. S. Steel Canada, are expected to decline by as much as 10% from the 3.2 million net tons shipped by our U.S. plants in the third quarter and average realized prices are also expected to decrease from the third quarter as a result of weaker spot market conditions and lower shipments to end users around the holiday season.
We expect fourth quarter results for our European segment to increase slightly compared to the third quarter primarily due to higher shipments and lower facility repairs and maintenance costs as scheduled maintenance was completed in the third quarter. A shift in product mix is expected to result in lower average realized euro-based prices.
Fourth quarter results for our Tubular segment are expected to increase slightly compared to the third quarter. We expect average realized prices to increase compared to the third quarter due to continued improved pricing, including the positive impact of the OCTG case decision, and an improved mix as a result of a reduction in our exposure to welded line pipe. Shipments are projected to decrease slightly due to the indefinite idling of the McKeesport and Bellville facilities.
| Earnings Highlights | |||||||||
| (Dollars in millions, except per share amounts) | 3Q 2014 | 2Q 2014 | 3Q 2013 | ||||||
| Net Sales | US$ | 4,587 | US$ | 4,400 | US$ | 4,131 | |||
| Segment income (loss) from operations | |||||||||
| Flat-rolled | US$ | 347 | US$ | 30 | US$ | 82 | |||
| U. S. Steel Europe | 29 | 38 | (32) | ||||||
| Tubular | 69 | 47 | 49 | ||||||
| Other Businesses | 34 | 17 | 14 | ||||||
| Total reportable segment and Other Businesses income from operations | US$ | 479 | US$ | 132 | US$ | 113 | |||
| Postretirement benefit expense | (26) | (32) | (55) | ||||||
| Other items not allocated to segments | (594) | (65) | (1,760) | ||||||
| (Loss) income from operations | US$ | (141) | US$ | 35 | US$ | (1,702) | |||
| Net interest and other financial costs | 60 | 64 | 85 | ||||||
| Income tax provision (benefit) | 6 | (11) | 4 | ||||||
| Less: Net loss attributable to the noncontrolling interests | — | — | — | ||||||
| Net loss attributable to United States Steel Corporation | US$ | (207) | US$ | (18) | US$ | (1,791) | |||
| -Per basic share | US$ | (1.42) | US$ | (0.12) | US$ | (12.38) | |||
| -Per diluted share | US$ | (1.42) | US$ | (0.12) | US$ | (12.38) | |||
Commenting on results, U. S. Steel president and chief executive officer Mario Longhi said, "We experienced a significant improvement in Total reportable segments and Other Businesses income from operations in the third quarter, the highest level since the market peak in 2008. Steel market conditions in the U.S. have remained stable and our operations have performed well, particularly our Flat-rolled segment, where we returned to more normal operating levels and income from operations increased by over US$300 million from the second quarter. Our results reflect the significant improvement in our earnings power from our Carnegie Way transformation efforts."
The US$479 million, or US$94 per ton, of Total reportable segment and Other Businesses income from operations for the third quarter of 2014 compares to income from operations of US$132 million, or US$26 per ton, in the second quarter of 2014 and income from operations of US$113 million, or US$24 per ton, in the third quarter of 2013.
Other items not allocated to segments in the third quarter of 2014 consisted of pre-tax non-cash charges for strategic actions totaling US$649 million and a US$55 million gain on the sale of real estate assets.
As of September 30, 2014, U. S. Steel had US$1.3 billion of cash and US$3.0 billion of total liquidity. Cash provided by operating activities was US$1.2 billion in the first nine months of 2014 primarily due to improved results and working capital management.
Reportable Segments and Other Businesses
We continue to realize increasing benefits and improving earnings power from our Carnegie Way transformation across all of our segments.
Results for our Flat-rolled segment improved significantly from the second quarter. Shipments increased as we returned to normal operations in the third quarter, while the relatively flat market conditions during the quarter resulted in average realized prices that were consistent with the second quarter. There was a favorable impact of approximately US$150 million in the third quarter from reduced repairs and maintenance costs and increased operating efficiencies along with the increased shipments. Operating costs also reflected a decrease in energy costs. Additionally, third quarter results included a US$20 million operating loss for U. S. Steel Canada for the period prior to its CCAA filing on 16 September 2014.
We reported decreased results for our European segment as compared to the second quarter. Scheduled caster and blast furnace maintenance along with the normal impact of the European holiday season resulted in lower shipments and higher repairs and maintenance costs related to the planned outages. These negative impacts were partially offset by a decrease in raw materials costs, primarily for iron ore. Average realized euro-based prices were in line with the second quarter.
Tubular segment results improved as compared to the second quarter. Shipments decreased, due to the indefinite idling of the McKeesport and Bellville facilities during the third quarter, while average realized prices increased due to improved pricing and mix.
Outlook
Commenting on U. S. Steel's outlook for the fourth quarter, Longhi said, "Our Carnegie Way progress so far has exceeded our expectations in this multi-year journey. We expect to continue to see increasing benefits from our Carnegie Way transformation which focuses on building stockholder value. We expect fourth quarter segment income from operations to decrease compared to the third quarter primarily due to significantly lower results for our Flat-rolled segment. Results for our European and Tubular segments are expected to improve slightly compared to the third quarter."
Fourth quarter results for our Flat-rolled segment are expected to decrease significantly compared to the third quarter but are expected to exceed US$100 million. Overall, repairs and maintenance costs are expected to increase by approximately US$150 million as compared to the third quarter due primarily to a reline of a blast furnace at Mon Valley Works and planned blast furnace maintenance projects at Granite City and Great Lakes, which will result in lower operating levels. Shipments, which no longer include U. S. Steel Canada, are expected to decline by as much as 10% from the 3.2 million net tons shipped by our U.S. plants in the third quarter and average realized prices are also expected to decrease from the third quarter as a result of weaker spot market conditions and lower shipments to end users around the holiday season.
We expect fourth quarter results for our European segment to increase slightly compared to the third quarter primarily due to higher shipments and lower facility repairs and maintenance costs as scheduled maintenance was completed in the third quarter. A shift in product mix is expected to result in lower average realized euro-based prices.
Fourth quarter results for our Tubular segment are expected to increase slightly compared to the third quarter. We expect average realized prices to increase compared to the third quarter due to continued improved pricing, including the positive impact of the OCTG case decision, and an improved mix as a result of a reduction in our exposure to welded line pipe. Shipments are projected to decrease slightly due to the indefinite idling of the McKeesport and Bellville facilities.
