U.S. Steel Reports Second Quarter Results
07/29/2009 - United States Steel reports a net loss of $392 million on net sales of $2.1 billion for the second quarter, and a net loss of $831 million on net sales of $4.88 billion for the first six months of 2009.
United States Steel Corp. reported a net loss of $392 million on net sales of $2.1 billion for the second quarter, and a net loss of $831 million on net sales of $4.88 billion for the first six months of 2009.
Second Quarter Results — The $392 million net loss ($2.92 per diluted share) compares to a net loss of $439 million ($3.78 per diluted share) in the previous quarter (1Q09) and net income of $668 million ($5.65 per diluted share) in the year-ago second quarter.
"Our second quarter operating loss was in line with the first quarter as our order book and operating rates remained at very low levels, spot market prices declined and we continued to incur carrying costs for our idled facilities," said U. S. Steel Chairman and CEO John P. Surma, commenting on results.
The company reported a $465 million loss from operations, which compares to a loss of $478 million in the previous quarter (1Q09) and $954 million income from operations in the year-ago second quarter.
Other items not allocated to segments for the second quarter comprised $45 million pre-tax income from reversal of a litigation reserve and $34 million associated with the recovery of federal excise taxes that were paid on coal export sales during 1990 to 1992. These items increased net income by $49 million (36 cents per diluted share). Items not allocated to segments increased net income by $7 million in the previous quarter, and reduced net income by $4 million in the year-ago second quarter.
Net interest and other financial costs included a foreign currency gain that increased net income by $41 million (31 cents per diluted share). This compares to a foreign currency loss that decreased net income by $28 million (24 cents per diluted share) in the previous quarter and an immaterial amount for these items in the year-ago second quarter.
Six Month Results — The $831 million net loss ($6.63 per diluted share) compares to net income of $903 million ($7.64 per diluted share) in the first six months of 2008. Net sales of $4.88 billion compare to net sales of $11.94 billion for the first six months of 2008.
The effective tax benefit rate of 19% for the first six months of 2009 is lower than the statutory rate because losses in Canada and Serbia. These jurisdictions did not generate a tax benefit for accounting purposes, as the company recorded a full valuation allowance on deferred tax assets.
U. S. Steel raised $1.5 billion through common stock and senior convertible notes offerings during the second quarter, and also repaid $655 million of term loans due in 2010 and 2012, and amended its revolving credit facility. The company ended the second quarter with a total liquidity of $3.1 billion.
Reportable Segments and Other Businesses — U. S. Steel's reportable segments and Other Businesses reported a segment loss from operations of $510 million ($173 per ton) in the second quarter, which compares with a loss of $457 million ($142 per ton) in the previous quarter (1Q09) and income of $959 million ($136 per ton) in the year-ago quarter. The company said lower overall results reflect significantly lower Tubular results, which more than offset the changes in Flat-rolled and U. S. Steel Europe (USSE).
Results included approximately $100 million of lower of cost or market related adjustments primarily at U. S. Steel Canada (USSC), USSE and Texas Operations, which compare to $65 million in such costs for the previous quarter (1Q09). The adjustments reflect significant decreased flat-rolled and tubular selling prices in recent quarters.
Results included approximately $100 million of lower of cost or market related adjustments primarily at U. S. Steel Canada (USSC), USSE and Texas Operations, which compare to $65 million in such costs for the previous quarter (1Q09). The adjustments reflect significant decreased flat-rolled and tubular selling prices in recent quarters.
The company’s Flat-Rolled Segment reported an improved loss from operations (vs. the previous quarter) despite extremely low capability utilization (32%), primarily due to non-recurrence of costs associated with estimated future layoff benefits and excess natural gas forward purchase contracts. Other factors contributing to the improved results included reductions in spending and labor, partially offset by lower average realized prices, additional lower of cost or market inventory charges, and reduced shipments. Results reflected approximately $285 million for employee and other costs associated with idled facilities, which compares to $230 million in the first quarter of 2009 when the company idled its Lake Erie Works as well as additional iron ore capacity.
Results for USSE improved significantly compared to the previous quarter primarily due to lower raw material costs, sales of emissions allowances, and lower inventory write-downs. These items were partially offset by lower average realized prices.
The company said its Tubular Segment’s results continue to reflect the impact of lower oil and gas exploration and production activity, high inventory levels, and the surge of unfairly traded and subsidized product from China. The segment’s second quarter operating loss compares to operating income in the previous quarter, with the less-favorable results attributed to a decrease in shipments, lower average realized prices and second quarter lower of cost or market related write-downs. These items were partially offset by the non-recurrence of accruals for estimated future layoff benefits. Results reflected approximately $25 million in employee and other costs associated with idled facilities, compared to $20 million in the first quarter of 2009.
Outlook —"While we anticipate an increase in our third quarter operating rates from the extremely low levels of last quarter, we expect each of our segments to report an operating loss in the third quarter due to continued low operating rates, idled facility carrying costs and lower average realized prices,” said Surma, commenting on U. S. Steel's outlook for the third quarter. “There are some signs that the destocking cycle has ended in the North American and Central European steel markets as increased customer orders across almost all industry segments have resulted in an extension of lead times.
“We have begun to bring up idled facilities in line with customer demand and we have implemented price increases in our Flat-rolled and USSE segments in the third quarter,” continued Surma. “Despite these signs of improvement, the outlook for overall demand remains uncertain and the timing and magnitude of sustained economic recovery remain difficult to forecast."
“For Flat-rolled, third quarter results are expected to decrease from the second quarter, reflecting lower index-based contract prices, which tend to lag the spot market, and increased shipments of lower-margin semi-finished and hot-rolled product,” continued Surma. “Raw steel capability utilization and shipments are expected to improve in line with increased customer orders as we restart raw materials and steelmaking operations. However, the favorable effects of these items are expected to be offset by higher raw material and energy costs, as well as costs to restart idled facilities at our Granite City Works and several raw materials operations.
Surma added that the company would consider restarting other facilities “if sustained customer demand supports higher production levels”. He added that the company is currently negotiating with the United Steelworkers for a successor to the labor agreement covering the Lake Erie Works operations, which expires on July 31, 2009.
Surma added that the company would consider restarting other facilities “if sustained customer demand supports higher production levels”. He added that the company is currently negotiating with the United Steelworkers for a successor to the labor agreement covering the Lake Erie Works operations, which expires on July 31, 2009.
“Third-quarter results for USSE are expected to be in line with the second quarter,” said Surma. “Lower raw material and energy costs and higher spot-market prices later in the quarter are expected to be offset by the non-recurrence of the gain on sales of emissions allowances and lower contract prices.”
Surma noted that the company has experienced a delay in the intended start-up of its third blast furnace at U. S. Steel Kosice, but added that it is expected to be operating by late September. “In the meantime, we are meeting our customers' requirements with increased production at U. S. Steel Serbia.”
Surma noted that the company has experienced a delay in the intended start-up of its third blast furnace at U. S. Steel Kosice, but added that it is expected to be operating by late September. “In the meantime, we are meeting our customers' requirements with increased production at U. S. Steel Serbia.”
“Third quarter results for Tubular are expected to show some improvement compared to the second quarter mainly due to a slight increase in shipments as customers fill limited inventory needs for certain specialized products,” added Surma. “However, we expect an operating loss as we continue to incur idled facility carrying costs and shipments and average realized prices continue to be depressed by the inventory glut created by the surge of unfairly traded and subsidized product from China.”
