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US Steel Earnings Up Big on Earnings Beat

Oct 29,2014  Company News  Comment: 0

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Philadelphia, Pennsylvania – (StockNewsDesk) – 10/29/2014 —US Steel’s stock opened almost 10% higher after the company topped analysts’ estimates for third-quarter earnings and revenue. The company has continued to reap the benefits of its “Carnegie Way” initiative, designed to cut costs and streamline operations. Due to this successful restructuring, the company has continued to thrive during a rough patch in the global economy and steel industry.

Earnings Beat

US Steel reported a loss of $207 million for the quarter; however, this was because of a onetime charge of $577 million involving restructuring costs such as the winding down of unprofitable operations in Canada and sale of other assets, as dictated by CEO Mario Longhi’s plan.

When the “Carnegie Way” was unveiled to shareholders and Wall Street, the stock actually sold off as there was skepticism whether it would work, thus these charges and costs have already been discounted. The stock’s price action verifies this price discounting as well.

Revenue also came in higher than expectations at $4.59 billion, an increase of 11% from the same quarter last year and above Wall Street consensus expectations of $4.55 billion.


Stunning Turnaround

US Steel has been climbing the Wall of Worry since it bottomed in mid 2013 in the low teens. Since this nadir, strength in the domestic economy, in combination with increased efficiency and lower costs, has led to a surge in earnings, sales and revenue. One evidence of this success is the company’s loss of $1.79 billion in the same quarter last year on revenue of $4.13 billion.

Since then, revenue has climbed modestly but sales have really taken off, but the most incredible improvement has been in margins, with the company’s cost cutting resulting in operating income of almost $500 million for the quarter. This is the biggest number since the peak of the previous steel cycle, when US Steel’s stock topped out around $150.

Stock Price

US Steel’s stock price was floundering in the low teens during its struggles in 2013. Today, the stock is over $40. Another potent catalyst has been the recovery in the domestic steel market, specifically rolled steel. This has come about as auto sales have continued to grow on a month over month basis, due to the availability of financing for consumers and the record age of the current vehicle fleet. Additionally, auto sales have yet to recover to 2007 levels, indicating there may be room for continued expansion.

Another positive tailwind for US Steel has been the improvement in construction, both commercial and residential. This increased demand has translated into pricing power for US Steel.

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