United States Steel Corporation (X)

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United States Steel (X)

Q1 2011 Earnings Call

April 26, 2011 3:00 pm ET

Executives

Gretchen Haggerty - Chief Financial Officer and Executive Vice President

Dan Lesnak -

John Surma - Chairman, Chief Executive Officer and Member of Proxy Committee

Analysts

David Olkovetsky

David Martin - Deutsche Bank AG

Mark Parr - KeyBanc Capital Markets Inc.

Justine Fisher - Goldman Sachs Group Inc.

David Katz - JP Morgan Chase & Co

Evan Kurtz - Morgan Stanley

Michelle Applebaum - Michelle Applebaum Research

David Gagliano - Crédit Suisse AG

Brian Yu - Citigroup Inc

Sal Tharani - Goldman Sachs Group Inc.

Michael Gambardella - JP Morgan Chase & Co

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the United States Steel First Quarter 2011 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. Dan Lesnak, Manager of Investor Relations. Please go ahead, sir.

Dan Lesnak

Thank you, Kylie. Good afternoon, and thank you for participating in United States Steel Corporation's First Quarter 2011 Earnings Conference Call and Webcast. We'll start the call with some brief introductory remarks from U.S. Steel Chairman and CEO, John Surma. Next, I will provide some additional details for the first quarter, and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on the outlook for the second quarter of 2011. 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 on our quarterly reports on Form 10-Q in accordance with the Safe Harbor provisions.

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

John Surma

Thanks, Dan. Good afternoon, everyone, and thank you for taking the time to joining us today. Earlier today, we reported a first quarter loss of $86 million or $0.60 per share. Although we did not return to profitability in the first quarter, the economic recovery has continued, resulting in market conditions where we expect to be significantly profitable in the second quarter.

Now before I discuss our results in detail, I would like to make a brief comment about our safety performance. Through the second week of April, our 2011 global safety performance, in terms of our total recordable injury rate, has improved by over 4% as compared to our 2010 performance. Likewise, our days-away-from-work rate has improved by over 12% from the 2010 base period. Safety is our #1 priority. And with the active participation of all of our employees, we will continue to pursue our goal of 0 injuries.

Now turning to our first quarter results. The operating loss for the Flat-rolled segment was $57 million in the first quarter, a significant improvement compared with the fourth quarter 2010 as the impact of a rising price environment that began in December ran ahead of the impact of a continuing increase in raw materials costs. Although our total increase in shipments was relatively small, we did have improved shipment levels in virtually every market we serve. Our raw steel capability utilization rate was 77% for the Flat-rolled segment, 5% higher than the fourth quarter 2010. Hamilton Works steelmaking facilities remained idle throughout the quarter. We incurred approximately $40 million in idle facility carrying costs at Hamilton during the first quarter.

For U.S. Steel Europe, we had an operating loss of $5 million, an improvement from a $39 million operating loss in the fourth quarter as the benefits of increased euro-based transaction prices and improved product mix and higher shipments across most of our markets exceeded the continuing increase in raw materials costs. Shipments increased by 17% to 1.4 million tons due to increased customer demand driven by improved economic conditions, reduced imports and lower customer supply chain inventory levels. We operated at 92% of raw steel capability for the first quarter, a 15% increase over the fourth quarter 2010 as we restarted the blast furnace at U.S. Steel Serbia that was idled during the fourth quarter.

Tubular income from operations was $30 million in the first quarter. The decrease in operating income from the fourth quarter was primarily results of increased costs for hot-rolled bands and rounds supplied by our Flat-rolled segment and decreased average realized selling prices due to changes in product mix and lower prices for OCTG products. Shipment results did benefit from a 10% increase in shipments to 425,000 tons as rig counts remained at good levels.

Now before turning things back to Dan, I want to add a few comments on our strategic view of things. Prior to the recession, we had invested in our iron and steelmaking facilities, and we're now focused on important strategic projects to address our coke requirements and to improve our market position in both the automotive and tubular markets. The Carbonyx coke substitute projects at our Gary Works, the new C Battery we're constructing at Clairton and the addition of pulverized coal injection to the rest of our blast furnaces in Europe will generate significant cost savings as we reduce our exposure to the comparatively expensive merchant coke market. The new heat treat and finishing facility at our Lorain Tubular Operations and the new continuous anneal line at our U.S.S.-Kobe joint venture in Ohio will position us to serve the growing demand from the shale developments and to provide the grades of advanced high strength steels that will soon be required by our automotive customers.

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