) is set to release its second-quarter 2014 results after the close
on Jul 29.
In the last quarter, the steel maker delivered a roughly 8%
negative earnings surprise. The company, however, swung to a profit
in the quarter as it benefited from its cost improvement actions
and higher pricing that offset headwinds from harsh weather. Let's
see how things are shaping up for this announcement.
Factors to Consider this Quarter
U.S. Steel, which has been removed from the S&P 500
effective Jul 1, expects lower income from operations in the second
quarter. The company is expected to face raw material delivery
issues and operational challenges in the quarter.
Production is expected to be limited and the supply of raw
materials and finished products will be less in the quarter due to
temporarily slow shipments, mainly resulting from continued
weather-related logistical issues.
Bad weather-related logistic bottlenecks are expected to affect
production and shipments in the June quarter, leading to a loss in
the Flat-rolled segment. The company's European division is also
expected to see weaker results in the quarter.
However, results in the Tubular segment are expected to improve
sequentially in the second quarter. Shipments have been projected
to be higher due to increased drilling activity.
While U.S. Steel continues to contend with challenging steel
market fundamentals, it should gain from increased cokemaking
capabilities and healthy automotive demand. The company's efforts
to improve its cost structure through its "Carnegie Way" initiative
should continue to provide support to its earnings. These actions
are expected to deliver $290 million (up from $150 million expected
earlier) in cost and margin improvements this year.
Our proven model does not conclusively show that U.S. Steel is
likely to beat the Zacks Consensus Estimate in the second quarter.
That is because a stock needs to have both a positive
(Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for
this to happen. That is not the case here, as you will see
ESP for U.S. Steel is 0.00%. This is because both the Most Accurate
Estimate and the Zacks Consensus Estimate are pegged at a loss of
Zacks Rank #3 (Hold):
U.S. Steel's Zacks Rank #3 when combined with an ESP of 0.00% makes
surprise prediction difficult. We caution against stocks with Zacks
Ranks #4 and #5 (Sell rated stocks) going into the earnings
announcement, especially when the company is seeing negative
estimate revisions momentum.
Other Stocks to Consider
Here are some other stocks in the basic materials sector you may
want to consider as our model shows they have the right combination
of elements to post an earnings beat this quarter:
Thompson Creek Metals Company Inc. (
) has earnings ESP of +7.69% and retains a Zacks Rank #2
Cameco Corporation (
) has earnings ESP of +21.43% and sports a Zacks Rank #3
Century Aluminum Co. (
) has earnings ESP of +5.88% and retains a Zacks Rank #3
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