U.S. Steel Corporation
), the largest integrated steel producer in the U.S., turned in an
encouraging performance in the second quarter of 2012, which is
quite commendable considering the recent performance of the other
players in the industry.
The company's adjusted earnings of 69 cents per share for the
quarter raced past the Zacks Consensus Estimate of 50 cents.
Reported net income slid almost 55% to $101 million (or 62 cents
per share) from $222 million, or $1.33 per share, last year.
Revenues inched down 2% year over year to $5,017 million in the
quarter but were ahead of the Zacks Consensus Estimate of $4,970
million. A strong performance from all operating segments acted as
tailwinds in the quarter and enabled U.S. Steel to beat
More importantly, U.S. Steel's European operations swung back
into the black from last year. The results have been greeted
positively and the stock gained nearly 11% in Tuesday morning
Profits from the
segment dropped almost 53% year over year to $177 million. A drop
in average realized price of steel to $772/ton in the quarter from
$803/ton last year led to the massive decline in profits as
shipments remained essentially flat.
The drop in steel prices does not come as a surprise as we have
AK Steel Holding Corporation
) also face similar constraints. Oversupply in the U.S. steel
industry and increased steel imports into the domestic market have
pressurized steel prices, hurting margins and profits of steel
players in the process.
U.S. Steel Europe
("USSE") raked in a profit of $34 million in the quarter, which is
a significant improvement over last year's loss of $18 million. The
company said that the situation in Europe improved considerably
from the first quarter, but it is still wary of the looming
uncertainty going forward.
Although the year over year performance in Europe was nothing
spectacular, with average prices going down roughly 18% and
shipments dropping 16%, the sequential improvement was worth
noting. Average realized prices exhibited improvement, driven by
higher spot market and quarterly contract prices. Also, operating
costs fell due to lower raw materials and energy costs.
The best performance of the quarter came from U.S. Steel's
segment. Profit from the segment grew to $103 million in the
quarter from $31 million last year. Shipments jumped 16% from last
year, and were aided by 9% increase in average realized price.
As of June 30, 2012, U. S. Steel had $565 million of cash
compared with $393 million as of June 30, 2011. Long-term debt
increased to $3.8 billion as of June 30, 2012 from $3.7 billion as
of June 30, 2011.
Outlook and Recommendation
The company expects all three of its segments to report positive
results in the third quarter. However, due to macroeconomic
uncertainty and sluggish growth in emerging markets, third quarter
results are expected to be below second quarter results.
U.S. Steel expects average realized prices to decline in the
third quarter. The tubular segment is expected to continue its
positive streak into the third quarter.
We currently have a long-term Neutral recommendation on U.S.
Steel. The company competes with
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