Will U.S. Steel (X) Beat Earnings Again This Season? - Analyst Blog

United States Steel Corp. ( X ) is set to release its fourth-quarter 2014 results after the bell on Jan 27, 2015

In the last quarter, the steel giant had delivered a positive earnings surprise of roughly 83%. This came on the back of strong profits in the company's Flat-rolled unit, supported by its Carnegie Way transformation efforts and solid contributions from its European business. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

U.S. Steel posted strong third-quarter 2014 results. The company narrowed its losses in the third quarter as its sales increased amid stable steel market conditions in the U.S. The company's third-quarter results were supported by strong operational performances at its flat-rolled facilities. Moreover, hot-rolled coil prices touched record high levels of $1,075 per ton.

Net loss, as reported, for the third quarter was $207 million or $1.42 per share, compared with net loss of $1,791 million or $12.38 per share recorded a year ago. Revenues increased 11% year over year to $4,587 million. Moreover, segment operating income for the first nine months of 2014 increased more than three fold over the prior-year quarter.

U.S. Steel projected its total benefits from Carnegie Way for 2014 to be $495 million. The company has already announced its plan for realigning its three business segments - North American Flat-Rolled, Tubular and U.S. Steel Europe - to attain three strategic goals. These are to increase collaboration with customers, focus on the Carnegie Way projects within the operating units with reliable maintenance and quality, and proper safety, and to create more focused and effective accountability.

U.S. Steel is optimistic about the steel consumption trends in North America. However, the company foresees a decline in income from operations in the fourth quarter of 2014 on a sequential basis due to significantly lower results in its Flat-rolled segment. Although results are anticipated to decrease sequentially in the fourth quarter, production at the Flat-rolled segment is expected to exceed $100 million. Tubular results are projected to increase modestly compared with the third quarter.

Shipments, which do not include U. S. Steel Canada, are expected to decline by about 10% sequentially. Also, average realized prices are expected to fall from the third quarter as a result of weaker spot market conditions and lower shipments to end users around the holiday season.

U.S. Steel expects results for its European segment to improve sequentially in the quarter due to increased shipments and reduced facility repairs and maintenance costs. This is because scheduled maintenance was completed in the third quarter. Average realized euro-based prices are expected to decline sequentially due to a shift in product mix.

Earnings Whispers?

Our proven model shows that U.S. Steel is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. U.S. Steel has the right combination of the two key components.

Zacks ESP : U.S. Steel has an earnings ESP of +2.27% - which represents the difference between the Most Accurate Estimate of 90 cents and the Zacks Consensus Estimate of 88 cents.

Zacks Rank : U.S. Steel carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.

U.S. Steel's Zacks Rank #3 and ESP of +2.27% make us reasonably confident of a positive earnings beat.

Stocks that Warrant a Look

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

Cameco Corporation ( CCJ ) has an Earnings ESP of +24.14% and a Zacks Rank #3.

Ryerson Holding Corporation ( RYI ) has an Earnings ESP of +4.17% and a Zacks Rank #3.

Steel Dynamics Inc. ( STLD ) has an Earnings ESP of +2.5% and a Zacks Rank #3.

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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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