U.S. Steel in a Reviving Mood - Analyst Blog

United States Steel Corporation (X) reported net operating loss of $1.62 per share, wider than the Zacks Consensus estimate loss of $1.12. The loss also widened from $1.58 reported in fourth quarter 2009.

For full year 2010, the company reported net loss $3.36 per share, a stark improvement from net loss of $10.42 per share in 2009. Results, however, compare unfavorably with Zacks Consensus estimate loss of $2.56.

Operational Performance

Revenue of United Steel in the quarter improved 28% year over year to gross $4.3 billion. Revenue surpassed the Zacks Consensus estimate of $4.2 billion. Full year 2010 revenue was $17.4 billion, a whopping increase of 57% over 2009.

Total operating expenses were $4.4 billion, up from $3.7 billion in the prior year quarter. Full year 2010 expense increased to $17.5 billion from $12.7 billion in 2009.

Loss from operations in the fourth quarter was $114 million, narrowed from loss from operations of $329 million in the year ago quarter.  For full year 2010, loss from operations was $111 million, a significant improvementloss of $1.7 billion in 2009.

Net loss was $249 million in the quarter under review, lower than a net loss of $267 million in the prior-year quarter. Net loss for 2010 was $482 million, a stark improvement from net loss of $1.401 billion in 2009.

Segmental performance

Flat-rolled product segment reported operating loss of $156 million in the fourth quarter of, much lower than loss of $284 million in the year ago period. For full year 2010, operating loss narrowed to $312 million from $1.4 billion in 2009.

Average realized prices in the fourth quarter decreased 4.5% over the third quarter to $657per net ton, Shipments increased 1% to 3.9 million net tons as customer order rates progressively improved in the quarter.

U. S. Steel Europe segment reported operating loss of $39 million, much wider from loss of $3 million in year ago quarter. For full year 2010, operating loss narrowed to $33 million from $208 million in 2009.

Shipments decreased 7% over the prior quarter to 1.2 million tons, attributable to reduced order rates from spot market customers.

The Tubular segment reported an operating profit of $96 million, an increase from $39 million in fourth quarter of 2009. Full year 2010 operating profit improved to $349 million form $57 million in 2009

Shipments decreased 9% over the prior quarter to 386 thousand tons. Average realized price decreased $55 to $1,504per ton.  

The Other Business segment posted income from operations of $7 million compared with $3 million in the year-ago period.Full year 2010 operating profit improved to $52 million, reversing the loss of $2 million in 2009

Financial Performance

United Steel ended 2010 with cash and cash equivalents of $578 million, lower than $1.2 billion at 2009 end. Long-term debt increased to $3.5 billion from $3.3 billion at 2009 end.

Cash outflow from operating activities of United Steel in 2010 were $379 million, much higher than outflow of $61 million in 2009. Capital expenditure totaled $676 million, compared with $472 million in the prior year.

First Quarter 2011 Outlook

United Steel expects Flat-rolled to post improved results benefiting from higher average realized prices, shipments and production volumes, partially offset by higher raw materials costs, primarily for scrap and coal.

Average realized prices are expected to increase from fourth quarter 2010 benefiting from increasing spot and some market-based contract prices throughout the first quarter. Raw steel capability utilization is expected to increase from the fourth quarter of 2010, as the management expects all the blast furnaces to be operational for the majority of the period except for Hamilton Works.

Management expects U.S. Steel Europe results to improve over the prior quarter based on higher shipments and production volumes, partially offset by higher raw materials costs.

It also expects all five blast furnaces to operate during the first quarter

Management expects Tubular operations to continue to post profit.  It expects a little improvement in shipments.  Average realized transaction prices are expected to be in line with fourth quarter levels as announced price increases begin to take effect throughout the quarter.  

For 2011, management estimates total costs for pension and other benefits plans to be approximately $590 millioncompared to $428 millionin 2010.  

Peer Comparison

AK Steel Holding Corporation (AKS), which competes with United Steel, reported a net loss of $54.5 million, or 49cents per share in the fourth quarter of 2010, compared to net income of $39.8 million, or 36cents per share in the prior year quarter. Results outperformed the Zacks Consensus Estimate of loss of 62 cents per share.

For fiscal FY10, the company reported after-tax loss of $59.8 million or 54 cents per share outperforming the Zacks Consensus Estimate of a loss of 68 cents per share.

We maintain our Neutral recommendation on United Steel. The quantitative Zacks # 3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

 
AK STEEL HLDG (AKS): Free Stock Analysis Report
 
UTD STATES STL (X): Free Stock Analysis Report
 
Zacks Investment Research