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United States Steel Reports 3rd Quarter Results
10/28/2009 - United States Steel Corp. reported a net loss of $303 million on net sales of $2.82 billion for the third quarter and a net loss of $1.13 billion on net sales of $7.69 billion for the first nine months of 2009.
United States Steel Corp. reported a net loss of $303 million on net sales of $2.82 billion for the third quarter and a net loss of $1.13 billion on net sales of $7.69 billion for the first nine months of 2009.
Third-Quarter Results — The $303 million net loss ($2.11 per diluted share) compares to a net loss of $392 million ($2.92 per diluted share) in the previous quarter and net income of $919 million ($7.79 per diluted share) in the year-ago third quarter.
The company reported a $412-million loss from operations, which compared with a $465-million loss in the previous quarter, and a $1,327-million income from operations of in the year-ago third quarter. Results do not include any other items not allocated to segments. In the previous quarter (2Q09) other items not allocated to segments increased net income by $49 million (36 cents per diluted share), while in the year-ago third quarter, other items not allocated to segments reduced net income by $79 million (67 cents per diluted share).
Management Comments — "Shipment volumes and operating rates for all of our reportable segments increased significantly from the very low levels of the second quarter as we brought several idled facilities online to satisfy increased customer order rates,” said U. S. Steel Chairman and CEO John P. Surma, commenting on results. “Our European and Tubular segments had improved financial performance and our Flat-rolled segment's results were in line with the prior quarter despite the effects of continued low operating rates and facility restart costs."
Financial Results — Net interest and other financial costs included a foreign currency gain that increased net income by $24 million (16 cents per diluted share). The net gain resulted from the remeasurement of an $828-million U.S. dollar-denominated intercompany loan to a European affiliate, partially offset by losses on euro-U.S. dollar derivatives activity. This compares to a foreign currency gain that increased net income by $41 million (31 cents per diluted share) in the previous quarter and a foreign currency loss that decreased net income by $39 million (33 cents per diluted share) in the year-ago third quarter.
The effective tax benefit rate (22%) for the first nine months is lower than the statutory rate because losses in Canada and Serbia (jurisdictions where the company has recorded a full valuation allowance on deferred tax assets) do not generate a tax benefit for accounting purposes. Results included a $23-million (16 cents per diluted share) catch-up benefit adjustment as a result of a slight increase in the estimated annual effective tax benefit rate.
During the third quarter, the company made a voluntary $140-million contribution to its main defined benefit pension plan in the United States. The company ended the quarter with $1.5 billion of cash, and total liquidity of $2.7 billion.
U. S. Steel's annual goodwill impairment test, which was completed during the third quarter, resulted in no impairment to the approximately $1.7 billion of goodwill on the balance sheet.
Reportable Segments and Other Businesses — U. S. Steel's reportable segments and Other Businesses reported a segment loss from operations of $379 million ($91 per ton), which compares to a loss of $510 million ($173 per ton) in the previous quarter and segment income from operations of $1,461 million ($227 per ton) in the year-ago third quarter.
For the Flat-rolled segment, income from operations was comparable to the previous quarter, reflecting improved operating efficiencies, higher shipments and lower inventory write-downs, offset by lower average realized prices, higher raw material costs and approximately $65 million of facility restart costs. Raw steel capability utilization for the quarter increased to 58% vs. 32% in the previous quarter. Shipments improved 50% to 2.7 million tons while average realized prices decreased 11% to $605 per net ton. Results reflected continuing employee and other costs for idled facilities totaling approximately $165 million (vs. $285 million in the previous quarter), reflecting steelmaking facility restarts at the company’s Granite City Works, Great Lakes Works, Hamilton Works, and raw materials operations. Based on current order rates, however, the company said that it plans to further adjust its operating configuration.
The company’s European segment recorded a small profit (vs. a loss in the previous quarter) as lower raw material and energy costs and improved operating efficiencies were somewhat offset by the non-recurrence of a $34 million second-quarter gain on sales of emissions allowances. Raw steel capability utilization increased from 57% in the previous quarter to 82% in the third quarter as the company restarted its third blast furnace at U. S. Steel Kosice (USSK) in early September and operated both blast furnaces at U. S. Steel Serbia for most of the third quarter. Shipments increased by 24% to 1.3 million tonnes, while average realized prices increased 2% to $615 per net ton as a decrease in euro-based prices was more than offset by foreign currency translation effects.
The company’s Tubular segment reported a reduced operating loss as compared to the previous quarter mainly due to higher shipments and lower inventory write-downs, partially offset by lower average realized prices. Shipments and average realized prices continued to be depressed by the inventory glut created by the surge of unfairly traded and subsidized product from China. Shipments increased 64% to 151,000 tonnes, still well below historical levels, and average realized prices decreased 3% to $1,474 per net ton. Results reflected continuing employee and other costs for idled facilities totaling approximately $25 million, in line with the previous quarter as welded facilities were operated at reduced levels.
Outlook — "We expect improvement in our overall fourth-quarter results mainly as a result of increased demand for Flat-rolled products in North America, driven primarily by automotive markets and continued strength in tin mill markets,” said Surma, commenting on U. S. Steel's outlook. “However, we expect to report an overall operating loss in the fourth quarter due primarily to continued low operating rates and idled facility carrying costs for our Flat-rolled and Tubular segments.
“We remain cautious in our outlook for end-user demand as customer order rates in Flat-rolled and U. S. Steel Europe (USSE) have decreased from the third quarter, partly due to seasonal slowdowns, and we will continue to adjust production to meet our customers' demand. Despite these concerns and uncertainties, we believe that the U.S. and global economies are in the early stages of a gradual recovery, which has been aided by global stimulus policies and may be supported by continued improvement in credit markets and inventory restocking."
For the Flat-rolled segment, Surma said the company expects fourth-quarter results to improve somewhat from the third quarter due primarily to higher average realized prices and increased shipments. He noted that the company does, however, expect to report an operating loss for the fourth quarter, primarily due to low operating rates and continued carrying costs for idled facilities. To adjust production to meet customer order rates, he said the company anticipates idling the Gary Works #14 Blast Furnace for repairs during the fourth quarter, as well as one of two furnaces at Granite City Works. As a result, Surma said the fourth quarter raw steel capability utilization rates are likely to be in line with third-quarter levels.
Surma also noted that the labor agreement covering the company’s Lake Erie Works operations has expired and no successor agreement has been reached yet.
“We expect fourth quarter results for USSE to be in line with the third quarter as higher average realized prices are offset by higher raw material costs and slightly lower shipments,” continued Surma. “Due to a planned maintenance outage for one of the three blast furnaces at USSK, we expect raw steel capability utilization rates to be lower than third quarter levels.” Surma added that the blast furnace operating configuration in Serbia would be adjusted as required to support customer order rates.
“Fourth quarter results for Tubular are expected to be comparable to the third quarter as operating levels, shipments and prices remain around prior quarter levels and we continue to incur carrying costs for idled facilities,” concluded Surma.
On October 9, 2009, U. S. Steel Canada (USSC) entered into an agreement with an unaffiliated third party providing for the sale of USSC's 44.6% interest in the Wabush Mines Joint Venture for approximately $53 million. Wabush owns and operates iron ore mining and pellet facilities in Newfoundland, Labrador and Quebec, Canada. On October 12, 2009, Cliffs Natural Resources Inc., one of the other owners of Wabush, exercised its right of first refusal and is now obligated to acquire USSC's interest in Wabush. Completion of the transaction is subject to customary closing conditions, including regulatory approvals and third party consents, and is scheduled to occur in the fourth quarter of 2009.
