* Q2 adj profit 69 cents/share vs Wall St view 47c/share
* Warns Q3 earnings below Q2 levels
* CEO says starting to see steel prices moving up
* Stock jumps 9 percent
By Steve James
July 31 U.S. Steel Corp's second-quarter
profit beat Wall Street's expectations, sending its stock
soaring, but the steelmaker also warned on Tuesday that
third-quarter results would drop off because of global economic
weakness and lower prices.
U.S. Steel's stock rose 9.1 percent to close at $20.65 on
the New York Stock Exchange.
"We expect ... operating results to be positive in the third
quarter but below our second-quarter results, reflecting
the continued weakness in the North American, European and
emerging market economies," Chief Executive Officer John Surma
said in a statement.
He said average realized steel prices are expected to be
lower in all three of U.S. Steel's businesses -- flat-rolled,
European and tubular.
But later, he gave Wall Street analysts a positive message,
saying flat-rolled steel and European prices were starting to
move up again, even if they were still lower than a year ago.
"We see the market moving up in front of us," Surma said on
a conference call. "It's still early in the process (and) we
like to discuss things with the customers before we talk about
it too much here, but the direction is pretty clear. It's up."
He said U.S. Steel was already booking orders into
September, but he remained concerned about cheap foreign imports
affecting domestic pricing.
"(But) The weaker euro (vs the U.S. dollar) should continue
to discourage imports in the near-term," Surma said.
The U.S. Steel chief said the global economic recovery
continues to be slow but there were some bright spots, such as
the automotive segment, which he said is operating at levels
well above last year.
Analyst David Gagliano of Barclays Capital Inc was bullish,
saying he was not surprised that U.S. Steel expects
third-quarter results to be weaker than the second quarter due
to continued weakness in North America, Europe and emerging
"The combination of another call for a trough in spot steel
prices, resilient tubular segment expectations for the third
quarter, the better-than-expected second-quarter results, and
recent indications of recovering scrap steel prices, each bodes
well for a near-term recovery in U.S. Steel shares," he said.
U.S. Steel's earnings follow a string of poor second-quarter
results from U.S. steelmakers struggling with weak demand.
Nucor's profit fell almost two-thirds and it forecast a
drop in third-quarter earnings because increasing imports of
cheaper foreign steel are pressuring already weak prices.
Steel Dynamics reported a drop of more than 50
percent in profit and AK Steel posted a second-quarter
loss as sales fell 14 percent.
U.S. Steel said its second-quarter net profit dropped more
than 50 percent to $101 million, or 62 cents per share, from
$222 million, or $1.33 per share, a year earlier.
Excluding an $11 million after-tax early redemption premium
on $300 million in senior notes due in 2013, earnings were 69
cents per share. On that basis, they beat analysts' estimates of
47 cents per share, according to Thomson Reuters I/B/E/S.
Revenue fell slightly to $5.0 billion from $5.1 billion,
buoyed by a boom in the North American oil and gas industry.
The Pittsburgh-based company said total steel shipments
declined in the second quarter to 5.43 million tons, from 5.5
million tons a year earlier, with prices falling in both the
flat-rolled and European segments.
But revenue was boosted by higher prices for tubular steel,
which is used for pipes in the oil and gas industry. However,
the company noted that tubular shipments of 493,000 tons were 7
percent lower than in the first quarter.
"The results were better than many people expected but
should have been better, given their favorable raw material
position," said analyst Charles Bradford, of Bradford Research
in New York.
He noted U.S. Steel has mines in Minnesota to produce its
own iron ore, a key ingredient in steelmaking. "Despite having a
substantial raw material cost advantage, U.S. Steel may lose
money in its third quarter if its flat rolled segment breaks
even, as they forecast," he said, citing substantial pension
costs and interest expense.
The company said it expected break-even results for its
flat-rolled segment in the third quarter due to lower average
It forecast Slovakia-based European segment results to
remain positive but lower than the second quarter, reflecting
the continued economic challenges in that market.
For its tubular business, U.S. Steel forecast third-quarter
results in line with the second quarter, with shipments expected
to be lower as end-users adjust their drilling schedules.