United States Steel Corporation (X)

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United States Steel Corporation (X)

Q4 2012 Earnings Call

January 29, 2013 3:00 pm ET


Dan Lesnak – Manager, Investor Relations

John P. Surma – Chairman and Chief Executive Officer

Gretchen R. Haggerty – Executive Vice President & Chief Financial Officer


Shneur Gershuni – UBS Investment Research

Evan Kurtz – Morgan Stanley

David Katz – JP Morgan Chase & Co

Brett Levy – Jefferies & Company

Timna Tanners – Bank of America/Merrill Lynch

Luke Folta – Jefferies & Co.

Brian Yu – Citigroup

David Gagliano – Barclays Capital

Richard Garchitorena – Credit Suisse

Justine Fisher – Goldman Sachs

Arun Viswanathan – Longbow Research

David Martin — Deutsche Bank Research

Sal Tharani – Goldman Sachs

David Lipschitz – CLSA

Mark Parr – KeyBanc Capital Markets



Welcome to the United States Steel Fourth Quarter 2012 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to our host, Mr. Dan Lesnak. Please go ahead.

Dan Lesnak

Thank you, Mary. Good afternoon, and thank you for participating in the United States Steel Corporation’s Fourth Quarter 2012 Earnings Conference Call and Webcast. For those of you participating by phone, the slides are included on the webcast are also available on your Investor section of our website at www.ussteel.com.

We will start the call with introductory remarks from U.S. Steel Chairman and CEO, John Surma, covering our fourth quarter results; next, I will provide some additional details for the fourth quarter; and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on a few financial matters and our outlook for the first quarter of 2013. Following our remarks, we’ll be happy to take your questions.

Before we begin, I must caution you that today’s conference call contains forward-looking statements, and that future results may differ materially from statements or projections made on today’s call. For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent Annual Report on Form 10-K and updated in our Quarterly Reports on Form 10-Q in accordance with the Safe Harbor provisions.

And now to begin the call here is U.S. Steel Chairman and CEO, John Surma.

John P. Surma

Thanks, Dan, and good afternoon, everyone. Thanks for joining us today on what I understand it’s been a very busy day for most of you, we appreciate you taking the time to be with us.

Earlier today, we reported fourth quarter net loss of $50 million, or $0.35 per share, our net sales of $4.5 billion and shipments of 5.2 million tons. These results included a benefit of $0.6 per share from the favorable settlement of the supplier contract dispute.

Although, our segment operating income was significantly lower as compared to the first three quarters of 2012, our Flat-rolled European and Tubular segments all reported positive results in the fourth quarter. While the global economic recovery has been slow and uneven, most of the markets we serve have shown some improvements over the last two years.

Overall, steel consumptions has increased, but in North America and EU, it still has not returned to pre-recession levels. We have focused on improving our cost structure and our operating performance factors that we can control. And our fourth quarter results this year are significantly better as compared to fourth quarter’s of 2011 and 2010.

Before I go into more detail on our segment operating results, I would like to comment on safety. We continue to make significant improvements in safety performance, which remains our company’s key core value. These improvements, both in the reduction of injuries and the elimination of workplace hazards are evident throughout all areas of our company. 2012 is our best year in terms of producing the rate of the most serious injuries, as our days-away-from-work rate was reduced by 8%.

In addition, our management team combined with the efforts of our production and maintenance employees made significant strides and risk assessments and hazard elimination, further reducing the exposure of our employees to potential injury.

In 2012, seven operating facilities went the entire year without experiencing a days-away-from-work injury. Our Keetac facility has not had a days-away-from-work injury in over three years, and our Fairless Plant has reached almost six years without a days-away-from-work injury, zero really is possible.

In 2013, we continue our efforts to maintain and improve upon a sustainable safety process that provides the opportunity for every employee to return home safely each day. We believe that our focus on safety also has tangible benefits in terms of productivity, reliability, quality, and cost control.

Now back to the numbers. For the full year, our segment operating income was $855 million, an improvement of almost $800 million as compared to 2010, with all of our segments reporting positive results in 2012. The sale of U.S. Steel Serbia at the end of January 2012, resulted in a significant improvement for our European segment year-over-year, while our North American results were similar to 2011.

Now, turning to our Flat-Rolled operations, we reported income from operations of $11 million in the fourth quarter, improvement of $83 million, or $22 per ton as compared to the fourth quarter of 2011. The decrease in operating income from the third quarter was primarily due to lower average realized prices and higher energy costs partially offset by lower raw materials and repair and maintenance costs.

Following the completion of several major projects earlier in the quarter, our facilities ran extremely well with fuel utilization rates at our U.S. plants well into the 90% range. 2012 was the first year that our flat-rolled segment reported positive operating results in each quarter since 2007. Our flat-rolled shipments in the fourth quarter decreased slightly.

Automotive demand remained strong and most of the markets we serve were generally stable. In total, North America remains a relatively attractive market in comparison to many other regions. Imports did increase in the fourth quarter and continue to negatively impact both prices and shipment levels for our flat-rolled segment.

Now turning to U.S. Steel Kosice, we reported an operating profit of $7 million in the fourth quarter, a significant improvement over the fourth quarter of 2011 loss of $22 million. For the year, USSK operating profit was $51 million as compared to an operating profit of $44 million in 2011. While economic conditions in Europe continue to be challenging, this operation has remained profitable in all but the most difficult steel market conditions.

While we expect raw material costs for our European operations to increase in the first quarter reflecting price trends in the global iron ore market, we anticipate improving demand in many of the markets we serve with several showing a positive direction in the first quarter as compared to the very difficult market conditions in the fourth quarter.

Our Tubular segment, income from operations was $32 million in the fourth quarter, off significantly from the third quarter due to lower shipments and prices as drilling activity and line pipe purchases slowed late in the year. For the full year, our Tubular segment shipped almost 1.9 million tons which included record shipments of premium alloy products and reported operating income of $366 million.

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