U. S. Steel Reports Year-End 2007 Results
01/30/2008 - United States Steel reports net income of $35 million on net sales of $4535 million for the fourth quarter, and net income of $879 million on net sales of $16,873 million for all of 2007.
United States Steel Corp. reported net income of $35 million on net sales of $4535 million for the fourth quarter, and net income of $879 million on net sales of $16,873 million for all of 2007.
Fourth Quarter Results—Net income of $35 million ($0.29 per diluted share) compares to third quarter 2007 net income of $269 million ($2.27 per diluted share), and fourth quarter 2006 net income of $297 million ($2.50 per diluted share). Net sales of $4535 million compare to net sales of $4354 in the previous quarter (third quarter of 2007), and net sales of $3774 in the fourth quarter of 2006
Results were reduced by $117 million ($0.98 per diluted share) due to a $69 million pre-tax charge related to inventory transition effects following the two major acquisitions, and a $57 million pre-tax charge resulting from a voluntary early retirement program at U. S. Steel Kosice (USSK). In the third quarter of 2007, a $27 million pre-tax charge related to inventory acquired in the Lone Star acquisition was not allocated to segments, and the tax provision included several discrete charges totaling $11 million. These items reduced third quarter 2007 net income by $28 million (23 cents per diluted share). In the fourth quarter of 2006, net interest and other financial costs included a $32 million pre-tax charge related to early redemption of debt. This and other items not allocated to segments decreased net income by $33 million (28 cents per diluted share).
Income from operations was $116 million, which compares with income from operations of $360 million in the third quarter of 2007 and $341 million in the fourth quarter of 2006.
Full Year Results—Net income of $879 million ($7.40 per diluted share) was reduced by $158 million ($1.33 per diluted share) due to inventory transition effects, a workforce reduction charge, early debt redemption expense, and several discrete tax charges. Results compare to full-year 2006 net income of $1,374 million ($11.18 per diluted share). Sales of $16,873 million compare to sales of $15,715 million in 2006.
Income from operations was $1,213 million versus income from operations of $1,785 million for the year 2006.
Management Comments—"This past year was an important period of growth for our company as we completed major acquisitions in both our flat-rolled and tubular businesses and commissioned our new automotive galvanizing line in Europe,” said U. S. Steel Chairman and CEO John Surma. “We are making steady progress with integration activities on both acquisitions, and we still expect to achieve the anticipated synergies."
Segments Results—U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $257 million ($43 per ton) in the fourth quarter of 2007, compared with $433 million ($78 per ton) in the third quarter of 2007 and $414 million ($85 per ton) in the fourth quarter of 2006.
With the incorporation of operating results for U. S. Steel Canada (USSC), effective October 31, results from the Flat-Rolled Segment were significantly lower than in the third quarter. The segment operated at 82% of capability, including only 60% for USSC, as a number of blast furnace repair outages—both planned and unplanned—were completed during the quarter.
With the USSC acquisition, this segment’s product mix shifted toward more hot-rolled and semi-finished production, which resulted in lower average realized prices compared to the third quarter. Production costs increased due mainly to higher raw material, natural gas, outage and modernization-related costs. USSC added 557,000 tons to fourth quarter Flat-rolled shipments under commercial arrangements in place at the time of acquisition. An operating loss was incurred as unplanned blast furnace outages limited shipments and resulted in high unit production costs.
The company said the decrease in fourth quarter 2007 European income from operations (as compared to the third quarter) was mainly due to a decline in euro-based prices as high imports, particularly from China, and high service center inventories pressured spot prices and order rates. Operating rates were curtailed to 79% of capability as a result of two planned blast furnace outages. Shipments were reduced by the outages and outbound rail transportation service disruptions late in the quarter. Additionally, raw material and energy costs increased.
Fourth quarter Tubular results improved slightly from the third quarter due mainly to higher average realized prices resulting from a change in product mix, and improved overall cost performance. These were partially offset by lower shipments.
Outlook—"We expect first quarter results to continue to reflect the volatile cost and pricing dynamics in our three major segments," said Surma. “Overall, we should be in a good position as 2008 progresses to take advantage of favorable supply side conditions, our expanded product and geographic positions in North America, and our new galvanizing line at USSK."
“For Flat-rolled, we expect improvement from fourth quarter results as shipments and operating rates are expected to increase compared to the fourth quarter, with the inclusion of USSC for the full quarter and the completion of the blast furnace projects,” continued Surma. “Our facilities in Canada have been operating much more reliably. Prices are also expected to be higher as increasing spot market prices will be realized throughout the quarter. In addition, customer commitments in place at USSC at the time of the acquisition are being completed and new commitments consistent with U. S. Steel's commercial policies are being made. We also expect significant cost increases for raw materials, particularly for purchased scrap, coke and alloys.
“For U. S. Steel Europe (USSE), we expect higher euro-based prices,” said Surma, “and shipments should increase as a result of higher facility availability in the quarter. Escalating raw material costs are expected to partially offset these improvements.
Surma noted that shipments and prices for the Tubular segment are expected to remain in line with the fourth quarter, with semi-finished steel costs increasing, and that Other Businesses would reflect the normal unfavorable seasonal effects of the closing of the Great Lakes for taconite pellet shipments.
Surma also said that the company expects capital expenditures for 2008 to total approximately $940 million, and that total costs for pension plans and OPEB are expected to be approximately $200 million in 2008 compared to $266 million in 2007, primarily due to lower pension expense.
“Volatility in net interest and other financial costs could increase going forward as a result of foreign currency accounting re-measurement effects,” said Surma, “primarily on a $1.2 billion intercompany loan to a European affiliate, related to the acquisition of USSC. As this intercompany loan is repaid, our exposure will decrease. Also, we expect to mitigate a portion of this volatility with our normal hedging activity.”
Common Stock Repurchase Program—The company repurchased 295,000 shares of U. S. Steel common stock for $30 million during the fourth quarter, bringing total repurchases to 14.3 million shares for $812 million since the repurchase program was originally authorized in July 2005. As of December 31, 2007, 6.5 million shares remained authorized for repurchase under the company’s stock repurchase program.
