U.S. Steel's Q4 2016 Earnings Preview: Cost Reduction Initiatives To Boost Results

We expect U.S. Steel to report an improvement in its Q4 2016 results despite unexpected production outages likely to adversely impact the U.S. Flat-rolled division's shipments, which account for over 70% of the company's revenue. Unexpected production outages at some Flat-rolled steel facilities negatively impacted the division's shipments in Q3 by around 125,000 tons. The division's shipments are likely to suffer in Q4 as well as these facilities recover from the production outages. However, the Carnegie Way, U.S. Steel's ongoing cost reduction and productivity enhancement initiative, is likely to prop up the company's bottom line in Q4, offsetting the impact of top line headwinds. The company's Tubular Steel division will continue to suffer from weak demand for tubular steels (which are used in oil and gas drilling) in an environment of subdued oil prices and drilling activity.

Going forward, the company's U.S. operations will benefit from the imposition of antidumping duties by U.S. authorities on steel imports from a number of countries over the course of 2016. Lower competition from unfairly traded steel imports boosted realized prices for the Flat-rolled division in Q3, after declines in the first half of the year. For the full year 2016, we expect the year-over-year decline in realized prices to be much lower than the 7% decline seen in 2015. In addition to favorable pricing, demand conditions are likely to improve substantially going forward as a result of the government's plans for a $1 trillion overhaul of domestic infrastructure. We would be looking out for an improved shipment guidance for 2017 from the management, reflecting the favorable demand conditions. The following tables summarize our expectations for U.S. Steel's Q4 results.

X Q4 2016 Pre-Earnings

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for U.S. Steel

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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.

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