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United States Steel Reports 4th Quarter, Full-Year Results
01/27/2010 - United States Steel Corp. reported a net loss of $267 million on net sales of $3.35 billion for the fourth quarter, and a net loss of $1,401 million on net sales of $11.05 billion for the full year 2009.
United States Steel Corp. reported a net loss of $267 million on net sales of $3.35 billion for the fourth quarter, and a net loss of $1,401 million on net sales of $11.05 billion for the full year 2009.
Fourth Quarter Results — The $267 million ($1.86 per diluted share) net loss compares to a loss of $303 million ($2.11 per diluted share) in the previous quarter (3Q09) and net income of $290 million ($2.50 per diluted share) in the year-ago fourth quarter.
The company reported a $329-million loss from operations, which compares with a $412 million loss from operations in the previous quarter (3Q09) and $522 million income from operations in the year-ago fourth quarter.
Full-Year Results — The $1,401 million ($10.42 per diluted share) net loss compares with full-year 2008 net income of $2,112 million ($17.96 per diluted share).
The company reported a $1,684 million loss from operations for 2009, vs. $3,069 million income from operations for 2008.
Capital expenditures for 2009 of $472 million consisted largely of non-discretionary environmental and other infrastructure projects. Only limited progress was made on certain projects of long-term strategic importance, as the company substantially reduced its planned capital spending from $740 million to conserve liquidity, which compares to capital expenditures of $735 million for 2008 and $692 million for 2007.
Management Comments — "We reported a modest improvement in fourth quarter results as compared to the third quarter mainly due to higher average realized prices, increased shipments and higher utilization rates for our Flat-rolled operations, primarily driven by North American automotive and service center markets, and the return to profitability of our Tubular operations," said U. S. Steel Chairman and CEO John P. Surma.
As of December 31, 2009, U. S. Steel had $1.2 billion of cash and $2.5 billion of total liquidity as compared to $0.7 billion of cash and $2.1 billion of total liquidity at December 31, 2008.
Reportable Segments and Other Businesses — U. S. Steel's reportable segments and Other Businesses reported a segment loss from operations of $245 million ($53 per ton) in the fourth quarter, which compares with a loss of $379 million ($91 per ton) in the previous quarter and income of $418 million ($100 per ton) in the year-ago fourth quarter.
Flat-Rolled Segment — The Flat-rolled segment’s results improved in the fourth quarter vs. the previous quarter, primarily due to higher average realized prices, increased shipments, and reduced facility restart costs. These favorable effects were somewhat offset by increased facility repair and maintenance costs as the company worked to improve available capacity in anticipation of increasing demand. Shipments improved by 18% to 3.2 million tons while average realized prices increased by 5% to $633 per net ton.
In response to increased customer order rates, the company was operating all of its available North American blast furnaces by the end of the fourth quarter, except the #14 Blast Furnace at Gary Works and the blast furnace at the Lake Erie Works. The company also restarted its Keetac iron ore operations. The company’s Lake Erie Works is not operating because a successor agreement has not been reached for an expired labor agreement.
Raw steel capability utilization rates increased to 64% for the quarter vs. 58% in the previous quarter. Results reflected continuing employee and other costs for idled facilities totaling approximately $80 million, primarily at the Lake Erie Works, compared to $165 million in the previous quarter.
U. S. Steel Europe (USSE) —The U. S. Steel Europe (USSE) segment’s results were slightly lower in the fourth quarter vs. the third quarter as USSE continued to operate at or near break-even results. Comparing fourth quarter results to the third quarter, the benefits of higher average realized prices were offset by higher costs for raw materials.
Raw steel capability utilization rates for USSE decreased to 80% in the fourth quarter vs. 82% in the third quarter, as the impact from a planned maintenance outage for one of three blast furnaces at U. S. Steel Kosice (USSK) was partially offset by increased production at U. S. Steel Serbia. Shipments decreased by 3% to 1.2 million tons while reported average realized prices increased by 8% to $664 per net ton.
Tubular — The company’s Tubular segment returned to profitability in the fourth quarter with operating income of $39 million, a substantial improvement from the previous quarter. The company said the improvement was mainly due to higher shipments, operating efficiencies, and the favorable effect of adjustments related to employee layoff benefits and LIFO inventory liquidations, which totaled approximately $10 million. Shipments were largely driven by increased demand for alloy and heat treated seamless tubular products, due in part to the continuing development of shale natural gas resources. The company said it also began to experience increased activity at its welded pipe facilities in East Texas. Shipments increased by 37% to 207,000 tons, a significant increase but still well below historical levels.
The company said its Tubular markets continue to be negatively affected by continued high levels of carbon grade oil country tubular goods inventories created by high amounts of unfairly traded and subsidized imports from China in prior quarters.
Average realized prices for the Tubular segment decreased by less than 1% to $1,462 per net ton. Results also reflected continuing employee and other costs for idled facilities totaling approximately $5 million, compared to $25 million in the third quarter of 2009.
Outlook — Commenting on U. S. Steel's outlook, Surma said, "We expect to report an overall first quarter 2010 operating loss in line with the fourth quarter 2009 as gradually improving business conditions are not yet fully reflected in our operating results. We continue to experience improved order rates from several of our end markets. Automotive, service center, converter and appliance customer order rates in North America and Europe are at or near their highest levels in the last twelve months, while in other markets, such as construction in North America, demand remains soft, but due to the low levels of inventory and the anticipated seasonal increases in activity at the end of the first quarter, our construction order book remains stable. A gradually strengthening economy should result in improvements in real demand, while apparent demand will likely be positively influenced by the restocking of the manufacturing supply chain, which we believe is under way. Relatively low levels of flat-rolled product imports, if continued, are also expected to support improved order rates. Our Tubular operations are also continuing to experience favorable demand trends, most notably in alloy product at our welded operations in East Texas. At the same time, spot market prices are increasing across all of our segments in response to increased order rates and global raw material cost pressures.
“We continue to believe that the U.S. and global economies are in the early stages of a gradual recovery,” continued Surma. “While we are becoming more optimistic, primarily due to improvements we are starting to see in the manufacturing sector, we remain cautious in our outlook for end user demand."
The company said that it expects Flat-Rolled results for first quarter 2010 to be comparable to fourth quarter 2009 as the benefits of increases in average realized prices and shipments and reduced facility repair and maintenance costs are expected to be offset by the absence of approximately $55 million of favorable effects from LIFO inventory liquidations and adjustments to employee layoff benefits. The company, which is currently making steel at six of its seven North American steelmaking locations, expects to complete maintenance work on the #14 Blast Furnace at Gary Works, late in the first quarter to have all available capacity in operation at these six locations before the end of the quarter. Overall, the company said it expects raw steel capability utilization rates to increase from the fourth quarter of 2009.
The company said that it expects first quarter 2010 results for USSE to be comparable to the fourth quarter 2009 as the benefits of increased shipments and operating efficiencies are expected to be offset by higher raw material costs. The company said it expects to complete maintenance work on the #3 Blast Furnace at USSK in early February and operate all five of that facility’s blast furnaces for the remainder of the quarter.
The company expects its Tubular operations to remain profitable in the first quarter, although results are expected to decrease as the benefits of increased shipments are expected to be offset by increased costs as production is ramped up to meet increased order rates, as well as the absence of the $10 million of favorable fourth quarter items discussed above. Although seamless and welded tubular product prices are expected to improve throughout the quarter, reported average realized prices are expected to decrease slightly due to a higher proportion of welded tubular product shipments. The company also said that it expects to report increased operating rates for all of its pipe facilities in the first quarter, most notably the welded pipe facility in East Texas. These expected increases should also benefit the company’s Flat-rolled operations that supply substrate to the welded pipe facilities.
Capital expenditures for 2010 are expected to total approximately $530 million and remain focused largely on environmental and other infrastructure projects. The company said that it continue to evaluate investments of long-term strategic importance, including projects to invest in the production of coke and coke substitutes, given that some of its existing coke batteries are approaching the end of their useful lives, to reduce coke requirements in Serbia through coal injection, to enhance the company’s Tubular operations in order to more efficiently serve customers' increased focus on shale natural gas resources and to allow the company to increase its participation in the automotive market as vehicle emission and safety requirements become more stringent. The company noted that it may seek to secure some long-term funding for such projects and general corporate purposes prior to committing to such projects.
