United States Steel Reports 1st Quarter 2010 Results
04/28/2010 - United States Steel reports a net loss of $157 million on net sales of $3.9 billion for the first quarter of 2010.
United States Steel Corp. reported a net loss of $157 million on net sales of $3.9 billion for the first quarter of 2010.
First Quarter Results — The $157 million ($1.10 per diluted share) net loss compares to a loss of $267 million ($1.86 per diluted share) in the previous quarter (Q4-2009) and a loss of $439 million ($3.78 per diluted share) in the year-ago first quarter. Net sales of $3.9 billion reflect a 16% increase from the previous quarter (Q4-2009).
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During the first quarter, U. S. Steel Canada's United Steelworkers-represented employees at the Lake Erie Works ratified a new three-year labor agreement.
The company expects to restart steel finishing, cokemaking and steelmaking facilities in a staged process throughout the second quarter.
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First Quarter Operating Results — The company reported a $57 million loss from operations, which compares with a $329 million loss from operations in the precious quarter (Q4-2009) and a $478 million loss from operations in the year-ago first quarter.
There were no other items not allocated to segments in the first quarter of 2010. For the previous quarter, other items not allocated to segments reduced net income by $31 million (21 cents per diluted share), while in the year-ago first quarter, other items not allocated to segments increased net income by $7 million (6 cents per diluted share).
Net interest and other financial costs included a foreign currency loss that decreased net income by $56 million (39 cents per diluted share); this loss resulted from remeasurement of a $1.2 billion U.S. dollar-denominated intercompany loan to a European subsidiary, partially offset by gains on Euro-U.S. dollar derivatives activity. This compares to foreign currency losses that decreased net income by $11 million (7 cents per diluted share) in the previous quarter and by $28 million (24 cents per diluted share) in the year-ago first quarter.
The effective tax benefit rate (four percent) is lower than the statutory rate largely because losses in Canada and Serbia do not generate a tax benefit for accounting purposes. The first quarter tax benefit also included two items that increased net income by approximately $3 million (2 cents per diluted share). The company recorded a net tax benefit of approximately $30 million.
Financial Position — The company issued $600 million of 7.375% Senior Notes due 2020 on March 16, 2010, resulting in net proceeds of $582 million and the financial flexibility to pursue investments of long-term strategic importance. The company also made a $140-million voluntary pension contribution to its main defined benefit pension plan, and repaid the $270 million of outstanding borrowings under the U. S. Steel Kosice (USSK) revolving credit facility, which matures in 2011. As of March 31, 2010, U. S. Steel had $1.4 billion of cash and $2.9 billion of total liquidity as compared to $1.2 billion of cash and $2.5 billion of total liquidity at December 31, 2009.
Reportable Segments and Other Businesses — The segment loss from operations was $13 million, essentially break-even on a per ton basis, compared with a $245 million ($53 per ton) segment loss from operations in the previous quarter (Q4-2009) and a $457 million ($142 per ton) segment loss from operations in the year-ago first quarter.
Results for Flat-rolled improved significantly in the first quarter vs. the previous quarter due to the benefits of higher average realized prices and shipments; operating efficiencies; reduced costs for facility repair and maintenance, energy and facility restarts; and increased intersegment shipments to Tubular. These benefits were partially offset by the absence of approximately $55 million of favorable fourth quarter effects from last-in, first-out (LIFO) inventory liquidations and adjustments to employee layoff benefit accruals. Flat-rolled's raw steel capability utilization rate increased to 73% in the first quarter (vs. 64% in the previous quarter).
The company completed maintenance work on its No. 14 Blast Furnace at Gary Works in mid March and had all steelmaking capacity in operation (except for the Lake Erie Works) before the end of the first quarter. Adjusting for Lake Erie Works and the No. 14 Blast Furnace outage, Flat-rolled operated at 94% of available raw steel capability in the first quarter. Shipments increased 12% to 3.6 million net tons and average realized prices increased to $654 per net ton, a $21-per-ton increase from the previous quarter, as spot market prices continued to increase through the first quarter. Results reflected continuing employee and other costs for idled facilities totaling approximately $50 million, solely at the Lake Erie Works, compared to $80 million in the previous quarter.
Results for U. S. Steel Europe (USSE) improved from the previous quarter primarily due to a 22% increase in shipments to 1.5 million tons. Average realized euro-based transaction prices were slightly lower than the previous quarter, however, the reported average realized price for the segment was $50 per ton lower than the previous quarter. Capability utilization was 87%, vs. 80% in the previous quarter. The company completed maintenance work on the No. 3 Blast Furnace at USSK in early February, and all five of the company’s European blast furnaces were in operation for the majority of the quarter.
First quarter Tubular results improved from the previous quarter as the benefits of increased shipments were partially offset by increased costs for steel substrate. Operating rates increased at all of the company’s major pipe facilities, most notably the welded pipe facility in East Texas. Shipments increased by 50% to 310,000 tons, primarily due to increases in welded pipe shipments. The reported average realized price for the segment was $1389 per ton, a $73-per-ton decrease from $1462 per ton in the previous quarter due to product mix and the impact of bottoming spot market prices toward the end of last year.
Outlook — "We anticipate being profitable in all three of our operating segments in the second quarter of 2010 as gradually improving business conditions should be reflected in our operating results, most notably for our Flat-rolled segment,” said Surma, looking ahead to the second quarter. “We continue to experience healthy order rates from most of our end markets, resulting in increased production levels.
“In North America, reported inventories in key end markets, such as automotive and service centers, remain below historical averages, as do flat-rolled product imports,” continued Surma. “In Europe, imports have also remained below historical averages and reported inventories remain low across our end markets. Our Tubular segment is also benefitting from both increased order rates, particularly for small-diameter alloy oil country tubular goods (OCTG), and a continuing steady decline in reported U.S. OCTG inventory levels from the record highs of early 2009.
“In summary,” said Surma, “we remain cautiously optimistic in our outlook for end user demand for all three of our operating segments in line with a gradual and continuing economic recovery.”
Surma said the company expects second quarter 2010 Flat-rolled results to improve as compared to the first quarter of 2010, with the benefits of increases in average realized prices, higher trade and intersegment shipments, and lower energy costs expected to be only partially offset by higher raw material costs (mainly scrap and coke) and increased facility repair and maintenance costs (including facility restart costs at Lake Erie Works). Average realized prices are expected to benefit from increases in both spot and index-based contract prices, which now reflect higher published market price assessments.
Surma also said that the restart process at Lake Erie Works is expected to be completed late in the second quarter, and that the company’s remaining steelmaking facilities are expected to operate for the entire quarter.
The company also expects USSE’s second quarter 2010 results to improve as compared to the first quarter primarily due to increases in euro-based transaction prices, partially offset by increases in raw material costs. Shipments are expected to be comparable to first quarter levels, and facilities are expected to operate at slightly higher overall utilization rates reflecting increased raw steel production at USSK. The company cautioned that USSE's raw steel availability would be limited due to operational issues with one of two blast furnaces in Serbia. Surma noted that the No. 2 Blast Furnace at U. S. Steel Serbia is currently expected to return to full production before the end of the second quarter.
The company expects second quarter results for Tubular to improve from the first quarter of 2010, with the benefits of expected increases in average realized prices and higher shipments likely only partially offset by increased costs for steel substrate. Operating rates are expected to continue increasing throughout the quarter in line with demand trends.
