United States Steel Corporation (X)

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United States Steel Corporation (X)

Q1 2010 Earnings Call Transcript

April 27, 2010 2:00 pm ET

Executives

Dan Lesnak – Manager, IR

John Surma – Chairman and CEO

Gretchen Haggerty – EVP and CFO

Analysts

Kuni Chen – Bank of America

Dave Martin – Deutsche Bank

David Gagliano – Credit Suisse

Timna Tanners – UBS

Brian Yu – Citi

Luke Folta – Longbow Research

Michael Gambardella – JPMorgan

Sal Tharani – Goldman Sachs

Charles Bradford – Affiliated Research

Mark Parr – KeyBanc Capital Markets

Brett Levy – Jefferies & Company

Dave Katz – JPMorgan

Presentation

Operator

Ladies and gentlemen, thank you for standing by; and welcome to the United States Steel Corporation's first quarter 2010 earnings conference call and webcast. At this time, all participants are in a listen-only mode, and later we will conduct the question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded, and I would now like to turn the conference over to our host, Mr. Dan Lesnak. Please go ahead, sir.

Dan Lesnak

Thank you, Karen. Good afternoon and thank you for participating in United States Steel Corporation’s first quarter 2010 earnings conference call webcast. We will start the call with some brief introductory remarks from US Steel Chairman and CEO, John Surma. Next, I will provide some additional details for the first quarter; and then Gretchen Haggerty, US Steel’s Executive Vice President and CFO will comment on the outlook for the second quarter of 2010. Following our prepared remarks, we will be happy to take any questions.

Before we begin, however, 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 provision.

Now, to begin the call, here is US Steel Chairman and CEO, John Surma.

John Surma

Thanks, Dan; and good afternoon, everyone. Thank you all for joining us. Earlier today, for the first quarter, we reported a quarterly net loss of $157 million or $1.10 per diluted share, a significant improvement from the fourth quarter, as we substantially reduced our operating loss in our North American Flat-rolled segment. Our European segment returned into profitability, and our Tubular segment continued to improve on its already solid performance.

Net interest and other financial costs in the first quarter of 2010 included a foreign currency loss that decreased net income by $56 million, or $0.39 per diluted share, due to the remeasurements of a U.S. dollar-denominated intercompany loan to a European affiliate, and related Euro-U.S. dollar derivatives activity. As previously disclosed, we reported a deferred tax charge of $27 million, as a result of U.S. health care legislation enacted in the first quarter.

Also, as the result of the inclusion of certain tax examinations and the remeasurement of existing tax reserves, unrelated to the new U.S. Healthcare legislation, we recorded a net tax benefit of $30 million in the first quarter. In total, these two tax items increased net income by approximately $3 million or $0.02 per diluted share.

Now let me turn to our operations. We reported a first quarter loss from operations of $57 million, compared to a $329 million loss from operations last quarter. Our operating results have been making a slow and steady recovery since hitting a low point in the first quarter of 2009, until this quarter, when the benefits of improved utilization rates and sending prices began to be realized in a more significant way.

Our segment loss from operations was $13 million, essentially break-even on a per ton bases, compared with a $245 million or $53 per ton loss in the fourth quarter. The improvements in our quarterly segment operating results from the first quarter of 2009 through the fourth quarter of 2009 was $212 million in total, while the improvement in this current quarter alone was in excess of $230 million, driven primarily by a $204 million improvement in our Flat-rolled segment. Our utilization rates have strengthened from extremely low levels in the first half of 2009, and shipments are at the highest level since the global economic downturn began in late 2008. When the improvement in our results as compared to the fourth quarter was most pronounced in our Flat-rolled segment, both the European and Tubular segments continued to make progress in becoming increasingly profitable.

The significant improvement in results for Flat-rolled in the first quarter of 2010 from the fourth quarter of 2009 was primarily due to the benefits of higher average realized prices of shipments, operating efficiencies, and decreased costs for facility repairs and maintenance, energy, and facility restarts, and increased inter-segment shipments through Tubular. Our Flat-rolled raw steel capability utilization rate increased to 73% in the first quarter of 2010, compared to 64% in the fourth quarter of 2009. We completed maintenance work at our #14 Blast Furnace at Gary Works in mid March and had all steelmaking capacity in operation, with the exception of our Lake Erie Works, before the end of the first quarter. Our ability to achieve a 73% utilization rate in the first quarter, when Lake Erie Works was down for the entire quarter and our #14 Blast Furnace at Gary Works operated for a very brief period, reflects an exceptional performance by our operators, since they were able to operate all of our other furnaces at extremely high and consistent levels throughout the quarter.

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