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U. S. Steel Reports Improvement in Q1 Results Despite Weather-Related Issues
04/30/2014 - United States Steel Corporation reported first quarter 2014 net income of US$52 million compared to a first quarter 2013 net loss of US$73 million and fourth quarter 2013 net income of US$270 million.
Adjusted net income for the fourth quarter of 2013 was US$38 million and adjusted net loss for the first quarter 2013 was US$51 million.
Commenting on the results, U. S. Steel president and CEO Mario Longhi said, "We are pleased to report an improvement in our first quarter operating results despite extreme weather-related issues. Higher natural gas prices and operational issues due to the weather were offset by better commercial prices and Carnegie Way benefits."
The US$154 million, or US$30 per ton, of reportable segment and Other Businesses income from operations for the first quarter of 2014 compares to income from operations of US$146 million, or US$30 per ton, in the fourth quarter of 2013 and income from operations of US$94 million, or US$17 per ton, in the first quarter of 2013.
Other items not allocated to segments in the fourth quarter of 2013 consisted of non-cash restructuring and other charges of US$248 million, or US$1.71 per diluted share; an adjustment to our preliminary non-cash goodwill impairment charge of US$23 million, or US$0.16 per diluted share; a US$32 million, or US$0.22 per diluted share, environmental remediation charge and a non-cash charge to write-off an equity investment of US$16 million, orUS$0.11 per diluted share.
Net interest and other financial costs in the first quarter of 2013 includes a US$34 million pre-tax charge related to repurchases of US$542 million principal amount of 4.00% Senior Convertible Notes due 2014.
For the first quarter 2014, U. S. Steel recorded a tax provision of US$1 million on its pre-tax income of US$53 million. Additionally, as disclosed in its 2013 Form 10-K, it recorded tax benefits totaling US$534 million for restructuring and other items in the fourth quarter 2013.
As of 31 March 2014, U. S. Steel had US$1.1 billion of cash and US$2.7 billion of total liquidity. Cash provided by operating activities improved in the first quarter due to improved working capital management.
Reportable Segments and Other Businesses
First quarter results for the Flat-rolled segment were comparable to the fourth quarter as higher average realized prices and shipments, Carnegie Way benefits, and reduced repairs and maintenance costs were offset by higher energy and raw materials costs. Average realized prices increased as a result of higher contract and spot market prices. Shipments also increased after the fourth quarter holiday down time and a full quarter's worth of production at Lake Erie Works. Repairs and maintenance costs decreased due to the completion of projects at Gary Works and Fairfield Works in the fourth quarter. The extraordinary weather conditions resulted in significantly higher natural gas costs as well as operating inefficiencies and logistical issues that negatively impacted shipments in the first quarter.
First quarter results for the European segment increased primarily due to higher average realized prices andUS$17 million of favorable effects from transactions to sell and swap a portion of carbon emission allowances. Average realized prices increased compared to the fourth quarter due to a more favorable product mix while shipments remained comparable.
Results for the Tubular segment in the first quarter decreased compared to the fourth quarter as decreased average realized prices and increased substrate costs were partially offset by the benefits of reduced operating costs. Average realized prices decreased due to pricing pressures primarily from continuing high import levels.
Outlook
Commenting on U. S. Steel's outlook for the second quarter, Longhi said, "We expect reduced income from operations in the second quarter. We expect our production to be limited which will temporarily slow shipments primarily due to continued weather-related logistical issues affecting both raw materials and finished products."
The company expects to report a loss for its Flat-rolled segment in the second quarter. The operational difficulties described above are projected to temporarily limit production capabilities, resulting in a reduction in shipments and higher operating costs as compared to first quarter. Market conditions in North America are improving; however, average realized prices are projected to be comparable to the first quarter. Given the production disruptions, second quarter shipments will be geared to fulfilling contract commitments where prices are not moving at the same rate as the spot market, as well as negatively influenced by lower automotive coated production and shipments this quarter. The company expects to have the operational difficulties largely behind it as it exits the second quarter.
U. S. Steel expect results for the European segment to decrease in the second quarter due to the absence of the sale and swap of carbon emission allowances in the first quarter. Shipments and average realized prices are expected to be comparable to the first quarter.
Tubular results are projected to increase compared to the first quarter. Shipments are projected to be higher due to increased drilling activity. It expects average realized prices to be in line with the first quarter.
The company expects a minimal tax provision/benefit in the second quarter.
It remains focused on cash flow and expect to retire the Senior Convertible Notes due in May 2014 without refinancing.
| Earnings Highlights | |||||||
| (Dollars in millions, except per share amounts) | 1Q 2014 | 4Q 2013 | 1Q 2013 | ||||
| Net Sales | US$ | 4,448 | US$ | 4,269 | US$ | 4,595 | |
| Segment income (loss) from operations | |||||||
| Flat-rolled | 85 | 87 | (13) | ||||
| U. S. Steel Europe | 32 | 12 | 38 | ||||
| Tubular | 24 | 32 | 64 | ||||
| Other Businesses | 13 | 15 | 5 | ||||
| Total reportable segment and Other Businesses income from operations | US$ | 154 | US$ | 146 | US$ | 94 | |
| Postretirement benefit expense | (32) | (56) | (56) | ||||
| Other items not allocated to segments | — | (319) | — | ||||
| Income (loss) from operations | US$ | 122 | US$ | (229) | US$ | 38 | |
| Net interest and other financial costs | 69 | 75 | 104 | ||||
| Income tax provision (benefit) | 1 | (574) | 7 | ||||
| Less: Net loss attributable to the noncontrolling interests | — | — | — | ||||
| Net income (loss) attributable to United States Steel Corporation | US$ | 52 | US$ | 270 | US$ | (73) | |
| -Per basic share | US$ | 0.36 | US$ | 1.87 | US$ | (0.51) | |
| -Per diluted share | US$ | 0.34 | US$ | 1.75 | US$ | (0.51) | |
Commenting on the results, U. S. Steel president and CEO Mario Longhi said, "We are pleased to report an improvement in our first quarter operating results despite extreme weather-related issues. Higher natural gas prices and operational issues due to the weather were offset by better commercial prices and Carnegie Way benefits."
The US$154 million, or US$30 per ton, of reportable segment and Other Businesses income from operations for the first quarter of 2014 compares to income from operations of US$146 million, or US$30 per ton, in the fourth quarter of 2013 and income from operations of US$94 million, or US$17 per ton, in the first quarter of 2013.
Other items not allocated to segments in the fourth quarter of 2013 consisted of non-cash restructuring and other charges of US$248 million, or US$1.71 per diluted share; an adjustment to our preliminary non-cash goodwill impairment charge of US$23 million, or US$0.16 per diluted share; a US$32 million, or US$0.22 per diluted share, environmental remediation charge and a non-cash charge to write-off an equity investment of US$16 million, orUS$0.11 per diluted share.
Net interest and other financial costs in the first quarter of 2013 includes a US$34 million pre-tax charge related to repurchases of US$542 million principal amount of 4.00% Senior Convertible Notes due 2014.
For the first quarter 2014, U. S. Steel recorded a tax provision of US$1 million on its pre-tax income of US$53 million. Additionally, as disclosed in its 2013 Form 10-K, it recorded tax benefits totaling US$534 million for restructuring and other items in the fourth quarter 2013.
As of 31 March 2014, U. S. Steel had US$1.1 billion of cash and US$2.7 billion of total liquidity. Cash provided by operating activities improved in the first quarter due to improved working capital management.
Reportable Segments and Other Businesses
First quarter results for the Flat-rolled segment were comparable to the fourth quarter as higher average realized prices and shipments, Carnegie Way benefits, and reduced repairs and maintenance costs were offset by higher energy and raw materials costs. Average realized prices increased as a result of higher contract and spot market prices. Shipments also increased after the fourth quarter holiday down time and a full quarter's worth of production at Lake Erie Works. Repairs and maintenance costs decreased due to the completion of projects at Gary Works and Fairfield Works in the fourth quarter. The extraordinary weather conditions resulted in significantly higher natural gas costs as well as operating inefficiencies and logistical issues that negatively impacted shipments in the first quarter.
First quarter results for the European segment increased primarily due to higher average realized prices andUS$17 million of favorable effects from transactions to sell and swap a portion of carbon emission allowances. Average realized prices increased compared to the fourth quarter due to a more favorable product mix while shipments remained comparable.
Results for the Tubular segment in the first quarter decreased compared to the fourth quarter as decreased average realized prices and increased substrate costs were partially offset by the benefits of reduced operating costs. Average realized prices decreased due to pricing pressures primarily from continuing high import levels.
Outlook
Commenting on U. S. Steel's outlook for the second quarter, Longhi said, "We expect reduced income from operations in the second quarter. We expect our production to be limited which will temporarily slow shipments primarily due to continued weather-related logistical issues affecting both raw materials and finished products."
The company expects to report a loss for its Flat-rolled segment in the second quarter. The operational difficulties described above are projected to temporarily limit production capabilities, resulting in a reduction in shipments and higher operating costs as compared to first quarter. Market conditions in North America are improving; however, average realized prices are projected to be comparable to the first quarter. Given the production disruptions, second quarter shipments will be geared to fulfilling contract commitments where prices are not moving at the same rate as the spot market, as well as negatively influenced by lower automotive coated production and shipments this quarter. The company expects to have the operational difficulties largely behind it as it exits the second quarter.
U. S. Steel expect results for the European segment to decrease in the second quarter due to the absence of the sale and swap of carbon emission allowances in the first quarter. Shipments and average realized prices are expected to be comparable to the first quarter.
Tubular results are projected to increase compared to the first quarter. Shipments are projected to be higher due to increased drilling activity. It expects average realized prices to be in line with the first quarter.
The company expects a minimal tax provision/benefit in the second quarter.
It remains focused on cash flow and expect to retire the Senior Convertible Notes due in May 2014 without refinancing.
| NITED STATES STEEL CORPORATION | ||||||||
| PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited) | ||||||||
| Quarter Ended | ||||||||
| 31 March | 31 Dec. | 31 March | ||||||
| 2014 | 2013 | 2013 | ||||||
| OPERATING STATISTICS | ||||||||
| Average realized price: ($/net ton) (a) | ||||||||
| Flat-rolled | 761 | 750 | 719 | |||||
| U. S. Steel Europe | 710 | 692 | 718 | |||||
| Tubular | 1,479 | 1,509 | 1,556 | |||||
| Steel Shipments: (a) (b) | ||||||||
| Flat-rolled | 3,674 | 3,470 | 4,018 | |||||
| U. S. Steel Europe | 1,031 | 1,029 | 1,048 | |||||
| Tubular | 419 | 414 | 428 | |||||
| Total Steel Shipments | 5,124 | 4,913 | 5,494 | |||||
| Intersegment Shipments: (b) | ||||||||
| Flat-rolled to Tubular | 435 | 363 | 441 | |||||
| Raw Steel Production: (b) | ||||||||
| Flat-rolled | 4,491 | 4,474 | 4,920 | |||||
| U. S. Steel Europe | 1,141 | 1,205 | 1,203 | |||||
| Raw Steel Capability Utilization: (c) | ||||||||
| Flat-rolled | 83% | 73% | 82% | |||||
| Flat-rolled U.S. Facilities (d) | 81% | 80% | 90% | |||||
| U. S. Steel Europe | 93% | 96% | 98% | |||||
| (a) Excludes intersegment shipments. | ||||||||
| (b) Thousands of net tons. | ||||||||
| (c) Based on annual raw steel production capability of 22.0 million net tons for Flat-rolled and 5.0 million net tons for U. S. Steel Europe. Prior to the permanent shut down of the iron and steelmaking facilities at Hamilton Works on December 31, 2013, annual raw steel production capability for Flat-rolled was 24.3 million net tons. | ||||||||
| (d) AISI capability utilization rates include our U.S. facilities (Gary Works, Great Lakes Works, Mon Valley Works, Granite City Works and Fairfield Works). | ||||||||
