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US Steel Sees Markets Improving After Quarterly Loss

Tuesday, 25 Jan 2011 02:40 PM

U.S. Steel Corp. sees signs that business will improve this year, with rising steel prices and more orders across its customer base. The turnaround likely will hinge on the pace of the global economic recovery.

U.S. Steel is "cautiously optimistic" that the economy will grow stronger in the first quarter. It expects more shipments and higher production volume to outpace rising raw material costs.

On Tuesday U.S. Steel reported a smaller fourth-quarter loss after it sold assets and cut spending on facility repair and maintenance.

The Pittsburgh company lost $249 million, or $1.74 per share, in the October-December period. That compares with a loss of $267 million, or $1.86 per share a year earlier. Revenue increased 28 percent to $4.3 billion from a year ago.

U.S. Steel said that market conditions were "soft" during most of the last three months of 2010. The price it got for steel products dropped from the third quarter, when it lost $51 million.

At the same time, the cost of sales, which includes raw materials, jumped 23 percent.

The results missed Wall Street expectations for a loss of $1.11 per share on revenue of $4.2 billion.

Chairman and CEO John Surma said steel prices began to rise late in the fourth quarter and should be reflected in U.S. Steel's earnings in the first half of 2011.

"We remain cautiously optimistic that global economic conditions will continue to improve in the first quarter," he said.

The message is similar from other steelmakers. AK Steel Holding Corp. and Steel Dynamics expect business to improve in the first quarter as the economy improves. On Tuesday AK Steel posted a loss of $98.3 million. A year ago it earned $39.8 million. Steel Dynamics on Monday reported net income of $7.8 million, down from a profit of nearly $26.7 million in the same quarter a year ago.

In the fourth quarter, U.S. Steel said the loss narrowed in its flat-rolled segment to $156 million, but its European business had a wider loss of $39 million. The company's tubular business reported a profit of $96 million.

Flat-rolled steel is used in appliances, cars and construction. Tubular steel is used to make pipes.

For the full year, United States Steel Corp. lost $482 million, or $3.36 per share, compared with a loss of $1.4 billion, or $10.42 per share, in 2009.

Analysts expected U.S. Steel to log a weak fourth quarter but some were disappointed with the muted first-quarter expectations.

"There's a mismatch in the revenue and cost streams where their prices are not realized in real time and their costs are," Steel Market Intelligence analyst Michelle Applebaum said. "Prices are up a lot but they don't see any of that until the second quarter.

Argus Research analyst Bill Selesky said the fourth quarter typically is weaker than others for most steel companies because customer demand falls at the end of the year.

Going forward, the main challenges will be to offset higher raw materials costs by passing along higher prices to customers, he said.

Selesky expects similar, weak results from steelmaker Nucor Corp., which is scheduled to report fourth-quarter results on Thursday. Nucor has forecast a loss of 10 cents to 15 cents a share in the fourth quarter because of higher material costs and weak demand from construction markets.

Analysts surveyed by FactSet predict a loss of 9 cents a share on revenue of $3.9 billion.

In afternoon trading, Shares of U.S. Steel rose 26 cents to $54.70; AK Steel added 89 cents, or 6.2 percent, at $15.35, Steel Dynamics rose 14 cents to $18.22 and Nucor lost 66 cents at $44.41.

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U.S. Steel Corp. sees signs that business will improve this year, with rising steel prices and more orders across its customer base. The turnaround likely will hinge on the pace of the global economic recovery.U.S. Steel is cautiously optimistic that the economy will grow...
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