U.S. Steel (X) Q4 Earnings Preview: Stock Poised to Beat?

U.S. SteelX is set to release its fourth-quarter 2016 results after the bell on Jan 31.

The steel giant's adjusted loss for the third quarter missed the Zacks Consensus Estimate (a 54.55% negative surprise). Revenues also fell year over year, and missed expectations.

U.S. Steel beat the Zacks Consensus Estimate in 2 of the trailing 4 quarters while missing in the other 2 with an average negative surprise of 1.16%. Let's see how things are shaping up for this announcement.

United States Steel Corporation Price and EPS Surprise

United States Steel Corporation Price and EPS Surprise | United States Steel Corporation Quote

Factors to Watch For

U.S. Steel, in its third-quarter 2016 call, said that operational issues remain a headwind as it continued to recover from unplanned outages in the third quarter while also completing the planned maintenance outages.

U.S. Steel cut its adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization) guidance for full-year 2016. It now sees adjusted EBITDA of roughly $475 million for the full year, down from its earlier expectations of around $850 million.

Moreover, the company now expects to post a loss of roughly $355 million, or $2.26 per share on a reported basis in 2016 compared with net earnings of $50 million or 34 cents per share it expected earlier. The company is facing certain operational issues and expects additional maintenance on facilities and planned outages in fourth-quarter 2016 which may also affect its Flat-Rolled shipments.

U.S. Steel's Tubular segment also remains challenged by weak pricing due to imports. The company expects the results for this segment to be lower on a year-over-year basis in 2016 due to the prevailing challenges. The depressed oil prices are also hurting the company's business in the energy market.

Nevertheless, U.S. Steel is seeing strong demand in the automotive space, a key end-use market for steel. Moreover, the company is aggressively pursuing actions to improve its cost structure through its "Carnegie Way" program that should lend support to its December quarter results.

U.S. Steel also expects roughly $500 million of cash benefits from working capital improvements for full-year 2016, mainly associated with better inventory management. The company plans to utilize its strong cash and liquidity position to speed up the revitalization of its facilities and to fund additional growth projects.

Steel market conditions have also improved lately, driven by favorable developments on steel trade cases in the recent past, providing some reprieve to U.S. steel producers. Steel prices have recovered of late, helped by punitive trade actions that led to levy of tariffs on imports.

U.S. Steel, last month, reached agreements to supply iron ore pellets to third-party customers. The company said that it will adjust its iron ore pellet production to take full advantage of these business opportunities.

The adjustments include a restart of the Keetac iron ore plant in Keewatin, MN. The plant has been temporarily idled since May 2015 due to factors including high levels of steel imports, unfair trade and reduced steel prices, leaving hundreds of workers laid off. U.S. Steel expects production to begin at the Keetac plant in Mar 2017.

U.S. Steel has outperformed the Zacks categorized Steel-Producers industry over the past three months. The company's shares have gained around 71.8% over this period, compared with roughly 20.5% gain recorded by the industry.

Earnings Whispers

Our proven model shows that U.S. Steel is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for U.S. Steel is +166.7% as the Most Accurate Estimate stands at 8 cents while the Zacks Consensus Estimate is pegged at 3 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: U.S. Steel currently carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of U.S. Steel's Zacks Rank #1 and positive ESP makes us reasonably confident of an earnings beat.

Stocks That Warrant a Look

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

IAMGOLD Corp. IAG has an Earnings ESP of +100% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Cliffs Natural Resources Inc. CLF has an Earnings ESP of +26.09% and a Zacks Rank #2.

Kraton Corp. KRA holds a Zacks Rank #2 and has Earnings ESP of +3.23%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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