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U. S. Steel Speeds Up Mill Upgrades at the Expense of Near-Term Earnings
04/26/2017 - United States Steel Corp. shares slid nearly 27% on Wednesday after the integrated steelmaker posted an unexpected US$180 million loss and said an accelerated plan to rehab its mills would cut into future earnings.
“It’s the right strategic decision for us to move quicker,” chief executive Mario Longhi said during the company’s quarterly earnings call, according to the Pittsburgh Post-Gazette.
U. S. Steel said it now expects to increase capital spending by US$300 million over 2016 and that the upgrades will require outages at many of its mills. It also said the plan will stretch over three to four years.
Longhi said the downtime means that the company will have less steel to sell into the spot markets. As a result, the company reduced its 2017 earnings forecast from US$535 million to US$260 million, a difference of about US$1.58 per share.
Bloomberg columnist Liam Denning wrote Wednesday that the new earnings guidance arising from reduced output helps reinforce “the sense U.S. Steel is indeed playing catch-up on investing in its plants.”
Axiom Capital Management Gordon Johnson, who spoke to Bloomberg for a separate article, agreed.
“They’re structurally worse off than everyone else given the age of their blast furnaces and that everyone else is in electric-arc furnaces,” he told the news service “This is going to cost them a lot of money and who’s going to say they can catch up?”
But during the call, Longhi tried to reassure analysts that the company was exchanging short-term gains for sustained results farther out.
“So when we think about this market being stronger, we believe that it's the right thing to do to make us more capable to benefit in the mid- to long-term than just focusing on the shorter-term plans that we had before,” he said.
U. S. Steel said it now expects to increase capital spending by US$300 million over 2016 and that the upgrades will require outages at many of its mills. It also said the plan will stretch over three to four years.
Longhi said the downtime means that the company will have less steel to sell into the spot markets. As a result, the company reduced its 2017 earnings forecast from US$535 million to US$260 million, a difference of about US$1.58 per share.
Bloomberg columnist Liam Denning wrote Wednesday that the new earnings guidance arising from reduced output helps reinforce “the sense U.S. Steel is indeed playing catch-up on investing in its plants.”
Axiom Capital Management Gordon Johnson, who spoke to Bloomberg for a separate article, agreed.
“They’re structurally worse off than everyone else given the age of their blast furnaces and that everyone else is in electric-arc furnaces,” he told the news service “This is going to cost them a lot of money and who’s going to say they can catch up?”
But during the call, Longhi tried to reassure analysts that the company was exchanging short-term gains for sustained results farther out.
“So when we think about this market being stronger, we believe that it's the right thing to do to make us more capable to benefit in the mid- to long-term than just focusing on the shorter-term plans that we had before,” he said.
