United States Steel Corporation (X)

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United States Steel (X)

Q3 2012 Earnings Call

October 30, 2012 2:00 pm ET

Executives

Dan Lesnak

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

Gretchen Robinson Haggerty - Chief Financial Officer and Executive Vice President

Analysts

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Michelle Applebaum - Steel Market Intelligence Inc

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Arun S. Viswanathan - Longbow Research LLC

Brian Yu - Citigroup Inc, Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the United States Steel Corporation Third Quarter 2012 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Dan Lesnak, Manager, Investor Relations. Please go ahead, sir.

Dan Lesnak

Thank you, Cathy. Good afternoon, and thank you for participating in the United States Steel Corporation's Third Quarter 2012 Earnings Conference Call and Webcast. For those of you participating by phone, the slides that are included on the webcast are also available on the Investors 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 third quarter results; next, I will provide some additional details for the third quarter; and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on a few financial matters, our recently completed labor agreements and our outlook for the fourth quarter. Following our prepared 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 here to begin the call is U.S. Steel Chairman and CEO, John Surma.

John P. Surma

Thanks, Dan, and good afternoon, everyone. Thanks for joining us. I expect for some under difficult circumstances, we appreciate you taking time for us today. We hope you're safe and secure and that things will return to normal as soon as possible.

Earlier today, we reported third quarter net income of $44 million or $0.28 per diluted share, net sales of $4.7 billion and shipments of 5.3 million tons. The results included a charge of $0.13 per diluted share for lump sum payments provided for in our new labor agreement with the United Steelworkers, as well as 2 favorable tax items, which increased net income by a total of $0.27 per diluted share.

Although economic conditions remained challenging in all of our markets and continue to be so, our Tubular segment had another solid quarter, and our Flat-rolled and European segments also remained profitable. Now before I go into more detail on our segment operating results, I would like to comment on safety, our company's primary core value.

Our collective efforts are focused on achieving a safety culture that is owned by an engaged and highly skilled workforce, with the ability to identify and eliminate workplace risks and hazards. These extensive efforts continue to yield safety performance improvements, most notably in our days-away-from-work injury rate, which has been reduced by 8% through the end of the third quarter of 2012 when compared to the same period of 2011.

These improvements were highlighted by a number of significant safety milestones we achieved within the company during the third quarter. For example, 12 of our operating locations have worked without a days-away-from-work injury so far this year. In our Gary Works, each Chicago tin division surpassed 2 years without an OSHA-recordable injury. We're proud of the collective efforts of our employees throughout all of our operations as we continue to pursue our goal of 0 injuries. We're particularly pleased with the productive cooperation of our colleagues at United Steelworkers who share our passion for the safety of our employees. And while I'm commenting on the USWA, we're pleased to have completed new competitive labor contracts last month without any disruptions to our employees, customers and operations. And Gretchen will comment on some of the details a little bit later.

Now turning to our Flat-rolled operations, we reported income from operations of $29 million. Higher imports earlier in the year, in conjunction with lower domestic scrap and global raw materials prices, caused spot and index-based contract prices to decrease in the third quarter. Although imports eased slightly in the third quarter as U.S. prices receded, imports still remain a significant concern and on a year-to-date basis remain well above last year's levels and well above the modest increase in domestic demand.

We realized some benefits from lower raw materials costs, particularly scrap, and our operators did a good job of controlling maintenance and outage costs in the third quarter. But these lower costs could only partially offset the significant impacts of lower realized prices.

Our Flat-rolled shipments in the third quarter remained in line with the second quarter, as demand in most of the markets we serve remained relatively stable. As the markets in North America have done comparatively better than most other regions, this is a market that is likely to remain attractive to imports until global demand begins to improve. This makes the enforcement of our existing trade laws an important issue for our industry to provide a fair environment for a sustainable recovery.

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