If you thought the 10.1% tumble AK Steel Holding Corporation (NYSE:AKS) suffered on Tuesday was bad, as the say, you ain’t seen nothin’ yet. Rival United States Steel Corporation (NYSE:X) has more than doubled that loss on Wednesday after posting shockingly poor first quarter results after yesterday’s close.
X stock is off to the tune of 25% on Wednesday morning, putting more downward pressure on AK Steel shares as well as other steel stocks.
Rather than a modest profit for its first quarter of 2017, the steel company posted a sizable loss of 83 cents per share. That’s not a GAAP loss of 83 cents per share, spurred by a one-time event or expense. Rather, U.S. Steel simply spent more to make tubular and flat-rolled steel than what the company sold it for. On a GAAP basis, the loss ramped up to $1.03 per share of X stock.
CEO Mario Longhi expressed optimism that the future looked brighter than the past has been. Without any clear, convincing explanation as to how things might change for the better though, investors weren’t buying it –literally and figuratively.
U.S. Steel Q1 Earnings
For the quarter ending in March, U.S. Steel turned revenue of $2.72 billion into a loss of $180 million, or a loss of $1.03 per share. The top line was better than the year-ago tally of $2.34 billion, and technically speaking, the bottom line was better too — U.S. Steel lost $340 million in the comparable quarter a year earlier.
But in that analysts were collectively expecting income of 30 cents per share on $2.92 billion in sales, the market’s bearish reaction is understandable.
“While our segment results improved by over $200 million compared with the first quarter of 2016, operating challenges at our Flat-Rolled facilities prevented us from benefiting fully from improved market conditions. However, we continue to be encouraged by the strength of our European business and we are also seeing improving energy markets. Overall, improved commercial conditions more than offset higher raw materials and energy costs and increased maintenance and outage spending driven by our asset revitalization efforts.”
Its U.S. Steel Europe division swung to an operating profit of 87 million, versus a loss of $14 million in Q1 of 2016. Its flat-rolled steel business booked a loss of $90 million though, and its tubular steel arm lost $57 million. Both of those losses were less than the losses booked a year ago, but still weren’t good enough.
The loss alarmingly comes at a time when steel prices are indeed improving. Hot rolled coiled steel prices, for instance, are up 70% since the end of 2015. Shanghai rebar prices are up by almost the same pace for the same time frame.
The bulk of that price increase, though, was realized by the fourth quarter of last year. If U.S. Steel was in a position to capitalize on the steel market’s rebound, there’d be more evidence of it by now.
Looking Ahead for X Stock
U.S. Steel foresees a full-year net profit of $260 million, or $1.50 per share of X stock, driven by better overall results from all three of its key divisions.
That would be a significant turnaround from the loss of $1.60 per share booked in 2016, though it still would fall short of analysts’ previous estimates for a full-year profit of $2.90. (That outlook assumed a profit of 30 cents per share rather than a loss of 83 cents per share last quarter.)
Moreover, U.S. Steel believes improved market conditions will help turn things around. Longhi went on to say:
“Market conditions have continued to improve, and we will realize greater benefits as these improved conditions are recognized more fully in our future results. We are focused on long-term and sustainable improvements in our business model that will position us to continue to be a strong business partner that creates value for our customers. This remains a cyclical industry and we will not let favorable near-term business conditions distract us from taking the outages we need to revitalize our assets in order to achieve more reliable and consistent operations, improve quality and cost performance, and generate more consistent financial results.”
For a company that has lost money in three of the past four prior years, though — and is starting the fifth year off on a sour note — owners of X stock have grown weary of an all-too-familiar chatter.
It’s time for results. The problem is management.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.