Steelmaker
United States Steel
(
X
) surprised the Zacks Consensus Estimate positively by 36.73% in
the first quarter. The company posted adjusted earnings of 67 cents
a share, outperforming the Zacks Consensus Estimate of 49 cents.
However, things are not as rosy as one might infer as the company
was recently downgraded by Fitch Ratings on account of its high
fixed costs and debt levels.
First Quarter Flashback
Net loss (as reported) widened roughly two-and-a-half-fold year
over year to $219 million (or $1.52 per share) in first-quarter
2012 from $86 million or 60 cents reported a year ago.
Revenues improved 6.3% year over year to $5.2 billion, above the
Zacks Consensus Estimate of $4.9 billion.
U.S. Steel's reportable segments and Other Businesses reported
income of $295 million, or $52 per ton, in the first quarter of
2012, compared with income of $4 million, or $1 per ton, in the
first quarter of 2011.
The company reported loss from operations of $73 million in the
quarter compared with a loss from operations of $91 million a
year-ago.
U.S. Steel expects that all three of its segments will yield
positive results in the second quarter and overall results will
remain consistent with the first quarter. However, higher
maintenance costs are expected to have an impact on the Flat-rolled
segment.
We have discussed the quarterly results at length here:
U.S. Steel Beats in 1Q
Agreement - Estimate Revisions
Estimates for U.S. Steel have barely moved over the past week.
Out of 14 analysts covering the stock, just 2 have decreased their
earnings estimates for fiscal 2012 over the past 7 days with none
moving in the opposite direction. None of the 11 analysts covering
the stock have altered their estimates for the second quarter in
the last week.
Estimates for 2012 demonstrate a negative bias over the last 30
days with 7 (out of 14) analysts having downgraded their forecasts
with 4 going in the opposite direction. For the second quarter,
estimates are negatively inclined over the past month with 6 (out
of 11) analysts lowering their forecasts as compared to 1 positive
revision.
Magnitude - Consensus Estimate Trend
Estimates for the second quarter and fiscal 2012 haven't moved
much over the last week, with the quarterly estimate remaining the
same and the fiscal 2012 estimate having trimmed by 4 cents.
The decline has been greater over the last month with estimates
for the second quarter and fiscal 2012 decreasing by 19 cents and 9
cents, respectively. The current Zacks Consensus Estimates for the
second quarter and 2012 are 64 cents and $2.38,
respectively.
Neutral on U.S. Steel
Pittsburgh, Pennsylvania-based U.S. Steel is a leading steel
manufacturer in the U.S. and the fifth largest in the world. It
produces and sells steel mill products - including flat-rolled and
tubular products - in North America and Europe. U.S. Steel has
a global annual raw steel production capacity of 31.7 million
tons (24.3 million tons in North America and 7.4 million tons in
Europe).
The company is focused on growing its business by developing new
steel products and uses for steel. For this reason, it has opened
research centers in Pittsburgh, Pennsylvania, and Kosice, Slovakia
and an automotive center in Troy, Michigan.
U.S. Steel divested its Serbian operations and this can be
considered as a good move since they were dragging down the
company's earnings. U.S. Steel is also focused on expanding its
global reach. The company looks to get into operations where costs
are low and has developed plants in Slovakia, serving the Eastern
European market, for that reason. Its acquisition of Stelco is also
an example of this strategy.
However, the conditions in the industry do not seem conducive
for U.S. Steel and it might face pricing pressures due to
oversupply. Rapid growth in Chinese steel output and competition
from peers might contribute to the decline in prices of steel. The
company is weighed down by its high fixed costs along with lower
capacity utilization, resulting in a cloudy forecast going
forward.
U.S. Steel competes with
ArcelorMittal
(
MT
) and
POSCO
(
PKX
). Currently, we have a long-term (more than 6 months) Neutral
recommendation on the stock. The company currently holds a Zacks #3
Rank, reflecting a short-term (1 to 3 months) Hold rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
http://www.zacks.com/education/
ARCELOR MITTAL (MT): Free Stock Analysis Report
POSCO-ADR (PKX): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
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