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U. S. Steel Reports Record 3rd Quarter Results

10/29/2008 - United States Steel reports net income of $919 million on net sales of $7.3 billion for the third quarter, and net income of $1.82 billion on net sales of $19.3 billion for the nine months ended September 30, 2008.

United States Steel Corp. reported net income of $919 million on net sales of $7.3 billion for the third quarter, and net income of $1.82 billion on net sales of $19.3 billion for the nine months ended September 30, 2008.
 
Third Quarter Results—The $919 million net income ($7.79 per diluted share) compares to second quarter 2008 net income of $668 million ($5.65 per diluted share), and third quarter 2007 net income of $269 million ($2.27 per diluted share).
 
“U. S. Steel performed extremely well in the third quarter and recorded the most profitable quarter in our history,” said U. S. Steel Chairman and CEO John P. Surma, commenting on results. “Our Flat-rolled and Tubular segments again posted record results, and tubular markets especially remained robust throughout the quarter.”
 
Income from operations reached $1,327 million, which compares with income from operations of $954 million in the second quarter of 2008 and $360 million in the third quarter of 2007.
 
Other items not allocated to segments comprised a $105-million pre-tax charge for employee signing bonuses (paid as provided in the new labor agreements with the USW) and a $23-million charge related to environmental remediation at a former production site. These items reduced net income by $79 million (67 cents per diluted share). Other items not allocated to segments in the second quarter of 2008 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). Discrete charges in the tax provision and an item not allocated to segments related to the Lone Star acquisition reduced third-quarter 2007 net income by $28 million (23 cents per diluted share).
 
Net interest and other financial costs included a foreign currency loss that decreased net income by $39 million (33 cents per diluted share), related to re-measurement of an $840-million U.S. dollar-denominated intercompany loan to a European subsidiary, partially offset by euro-U.S. dollar derivatives activity. This compares to an immaterial effect for these items in the second quarter of 2008.
 
The company also repurchased 1.13 million shares of common stock for approximately $130 million during the third quarter.
 
Nine Month Results—The $1.82 billion net income ($15.43 per diluted share) compares to net income of $844 million ($7.10 per diluted share) for the first nine months of 2007. Income from operations reached $2,547 million, which compares with income from operations of $1,097 million in the first nine months of 2007.
 
Reportable Segments & Other Businesses—U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $1,461 million ($227 per ton) in the third quarter, compared with segment income from operations of $959 million ($136 per ton) in the second quarter of 2008 and $433 million ($78 per ton) in the third quarter of 2007.
 
Income from operations for Flat-rolled improved significantly from the second quarter, primarily reflecting higher average realized prices, partially offset by increased raw materials costs, decreased shipments and higher costs for profit sharing.
 
The company attributes the decrease in European operating results primarily to higher raw materials costs, lower shipments (due to market conditions) and increased costs resulting from a planned reline of one of the three blast furnaces at U. S. Steel Kosice that began in early August. These were partially offset by higher average realized prices.
 
Production was reduced late in the third quarter to match declining order rates for the Flat-rolled and USSE segments. Raw steel production for the quarter was at 86% of capability in North America and 87% of capability in Europe.
 
The company said the substantial increase in Tubular income as compared to the second quarter resulted primarily from higher average realized prices, partially offset by increased costs for semi-finished steel.
 
Outlook—"The volatile global economic climate is having significant negative effects on our business and our forward view is limited because of low order backlogs and short lead-times,” said Surma, commenting on U. S. Steel's outlook. “We expect a decline in fourth quarter results mainly due to softening demand and prices for flat-rolled products in North America and Europe, and we expect to continue to operate at reduced production levels, corresponding with customer order rates.”
 
For Flat-rolled, the company expects fourth quarter results to decrease from the third quarter due primarily to substantially lower shipments and lower average realized prices, partially offset by lower raw materials costs.
 
Based on very weak market conditions, the company expects results to decline substantially for U. S. Steel Europe (USSE) in the fourth quarter. The company also expects Tubular results for the fourth quarter to be comparable to the third quarter.