United States Steel Corp., the largest U.S.-based steel producer, reports first-quarter earnings on Tuesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: The global economic downturn has dealt the steel industry a devastating blow, nearly wiping out demand from its most important markets, including construction and autos. The sudden decline in late 2008 followed a period of robust growth when steel prices climbed to all-time highs and steel makers reaped handsome profits. Amid tight credit markets and the global downturn, U.S. steel mills have ratcheted down production to less than half their capacity.
Pittsburgh-based U.S. Steel has been forced to lay off thousands of workers and temporarily idle plants since demand began tapering. Hundreds of employees have volunteered to retire early. In January, the company forecast an operating loss in its second quarter. U.S. Steel last posted a quarterly loss in the fourth quarter of 2003.
Analysts say they expect steel companies like U.S. Steel to post significant losses for the quarter due to low prices and the particularly sluggish demand and operating rates throughout the industry.
BY THE NUMBERS: Analysts, on average, expect U.S. Steel to report a loss of $1.69 per share on revenue of $3.14 billion, according to a survey by Thomson Reuters. Those results would reverse a profit of $1.98 per share and record revenue of $5.2 billion, a year earlier.
ANALYST TAKE: In a recent note to investors, JPMorgan analyst Michael Gambardella wrote that his firm expected integrated steel companies, including U.S. Steel, to report losses "due to the continued drop in steel demand and prices, extremely low utilization rates, higher levels of fixed costs, and, in some cases, still elevated raw material costs."
Investors may want to hold off on buying shares of steel companies before they report quarterly results. The companies are "unlikely to provide positive forward-looking commentary," wrote Citi Investment Research analyst Brian Yu. He said a number of producers just cut April prices, and there has been no observable pickup in production rates.
WHAT'S AHEAD: While steel companies have been unable to predict an end to the industry's woes, they expect an upturn eventually. Nucor Corp., which reported its first-ever quarterly loss on Thursday, said there were few signs of improvement. AK Steel Holding Corp., having posted its second consecutive quarterly loss, forecast more red ink in the current quarter.
Still, analyst Yu, citing recent manufacturing data, wrote: "We continue to expect a meaningful jump in average mill utilization rates," to 71 percent in the second half of 2009.
STOCK PERFORMANCE: During the quarter, U.S. Steel shares shed about 76 percent of their value. Over the past year, the stock has traded between $196 and $16.66 per share.
