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United States Steel Reports 2011 First Quarter Results
04/27/2011 - United States Steel reported a net loss of $86 million on net sales of $4.86 billion for the first quarter of 2011.
United States Steel Corp. reported a net loss of $86 million on net sales of $4.86 billion for the first quarter of 2011.
First Quarter Results — The $86 million net loss (-$0.60 per diluted share) compares to a net loss of $249 million (-$1.74 per diluted share) in the previous quarter (4Q2010) and a net loss of $157 million (-$1.10 per diluted share) for the year-ago first quarter. The $4.86 billion in net sales compares to net sales of $4.3 billion in the previous quarter and $3.90 billion in the year-ago first quarter.
"We reported better first quarter operating results in comparison to the fourth quarter as improving economic conditions and firm customer demand led to increased average realized prices, shipments and raw steel capability utilization for our North American and European flat-rolled operations,” said U. S. Steel Chairman and CEO John P. Surma, commenting on results. “The improvements were partially offset by increased raw materials costs.”
The company reported a loss from operations of $91 million, compared with a $114 million loss from operations in the previous quarter and a $57 million loss of in the year-ago first quarter.
Retiree benefit expenses increased in the first quarter as a result of a decline in the market-related value of pension plan assets and higher amortization of unrecognized losses, both of which relate to pension plan asset losses experienced in 2008. There were no other items not allocated to segments in the first quarter of 2011 or 2010. Other items not allocated to segments in the previous quarter (4Q2010) increased net income by $11 million (seven cents per diluted share).
Net interest and other financial costs included a foreign currency gain that increased net income by $81 million (56 cents per share), which resulted primarily from the accounting re-measurement of a $1.7 billion U.S. dollar-denominated intercompany loan to a European subsidiary, partially offset by losses on euro-U.S. dollar derivatives activity. This compares to a foreign currency loss that decreased net income by $33 million (23 cents per diluted share) in the previous quarter and a foreign currency loss that decreased net income by $56 million (39 cents per share) in the year-ago first quarter.
The company recorded a first-quarter tax provision of $16 million on its pre-tax loss of $70 million. The tax provision does not reflect any tax benefit for pre-tax losses in Canada and Serbia, where a full valuation allowance has been recorded on deferred tax assets, and also does not reflect any tax provision for foreign currency gains that are not recognized in any tax jurisdiction.
As of March 31, 2011, U. S. Steel had $421 million of cash and $2.0 billion of total liquidity as compared to $578 million of cash and $2.1 billion of total liquidity at December 31, 2010.
Reportable Segments and Other Businesses — U. S. Steel's reportable segments and Other Businesses reported a loss from operations of $20 million ($3 per ton) in the first quarter of 2011. This compares to a $92 million ($17 per ton) loss from operations in the previous quarter (4Q2010) and a $13 million ($2 per ton) loss from operations in the year-ago first quarter.
First quarter results for the company’s Flat-rolled segment improved compared to the fourth quarter 2010 as increases in average realized prices were only partially offset by higher raw materials costs primarily for purchased scrap and coal. Average realized prices increased by $63 per ton to $720 per ton as the company began to realize the benefits of increased spot market and some contract prices throughout the quarter.
The segment’s shipments increased by 3% to 4.0 million net tons as customer demand for carbon flat-rolled products continued to moderately increase in line with economic growth. Hamilton Works' iron and steelmaking and finishing facilities remained idled throughout the quarter due to the ongoing labor dispute. The Flat-rolled segment incurred approximately $40 million in idle facility carrying costs during both the first quarter 2011 and the fourth quarter 2010. The segment’s raw steel capability utilization rate in the first quarter was 77%, some 5% higher than the previous quarter.
First quarter results for U. S. Steel Europe (USSE) improved as the benefits of increased euro-based transaction prices and shipments were largely offset by higher raw materials costs. Shipments increased 17% to 1.4 million tons due to increased customer demand, driven by improved economic conditions, reduced imports and lower levels of customer supply chain inventories. The reported average realized price increased by $30 per ton in the first quarter to $823 per ton. USSE operated at 92% of raw steel capability for the first quarter, a 15% increase over the previous quarter as the company restarted a blast furnace at U. S. Steel Serbia that had been idle during most of the previous quarter.
Tubular results were lower than the previous quarter as costs for hot-rolled bands and rounds supplied by the company’s Flat-rolled segment increased while average realized prices decreased due to product mix and competitive market conditions. Segment shipments increased 10% to 425,000 tons, and the reported average realized price decreased by $57 to $1,447 per ton.
Outlook — "We expect to report a significant overall operating profit, primarily due to the realization of price increases in our Flat-rolled segment,” said Surma, commenting on U. S. Steel's outlook for the second quarter. He noted that order rates for most customer groups, which began to improve later in the fourth quarter, remained firm throughout the first quarter.
“While recent order rates have moderated, we remain cautiously optimistic that improving global economic conditions will continue, further stimulating end-user demand,” continued Surma. He added that the company continues to assess the effect of the events in Japan on its business. “Some of our automotive customers have reduced April builds and adjusted future production schedules due to parts shortages. We expect reductions in automotive production during the quarter to be made up in 2011 as vehicle inventories, presently low compared to historical levels, will need to be replenished.
“Flat-rolled results for the second quarter 2011 are expected to improve significantly compared to the first quarter 2011 driven largely by significantly higher average realized prices,” continued Surma. “Raw materials costs are expected to remain relatively stable, reflecting our iron ore, coal and coke position. Average realized prices are expected to increase from first quarter 2011 as we realize the benefits from increases in spot and contract prices, with index-based contract prices reflecting significantly higher published market price assessments. Raw steel capability utilization is expected to increase from the first quarter of 2011 as all of our steelmaking facilities are expected to operate for the majority of the period except for Hamilton Works.
“We expect second quarter 2011 results for USSE to be in line with the first quarter 2011 as increased average realized prices are expected to be offset by higher raw materials costs and decreased shipments. Average realized prices are expected to increase from first quarter 2011 as we realize the benefits from increases in contract prices,” sad Surma. “Our raw steel capability utilization rate is expected to decrease from the first quarter of 2011 due to reduced spot market demand caused by increased production across Europe and the rising threat of imports. Strength of underlying demand, as well as low to moderate inventory levels across the supply chain, should limit the duration of this current cycle.
Surma added that the company has decided to accelerate planned maintenance on a blast furnace in Serbia based on the current low level of spot customer orders. The outage was originally scheduled for later in the year. He said the company would continue to adjust its blast furnace configuration to coincide with customers order rates.
“Second quarter results for Tubular are expected to be in line with the first quarter as the benefits of increased average realized prices and shipments will be offset by higher costs for hot-rolled bands supplied by our Flat-rolled segment and purchased rounds,” added Surma. “Average realized transaction prices are expected to increase from first quarter levels as price increases take effect and product mix improves.”
United States Steel Corp., headquartered in Pittsburgh, Pa., is an integrated steel producer with major production operations in the United States, Canada and Central Europe and an annual raw steelmaking capability of 31.7 million net tons. The company manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and gas industries.
