U.S. Steel bends to slumping market
U.S. Steel Corp. said Friday that its third-quarter results will include a $1.8 billion charge to reflect the falling value of its flat-rolled and Texas tubular operations, an accounting move that likely will have significant impact on the company's bottom line.
The Pittsburgh-based steelmaker, which plans to report its earnings for the July-September period on Tuesday, said the non-cash charge will not affect its liquidity or debt agreements.
Steel analyst Charles Bradford in New York said the action is one of several difficult decisions that CEO Mario Longhi must make to turn around the nation's second-largest steelmaker, whose earnings and stock price have been in a slump.
Longhi replaced longtime CEO John P. Surma on Sept. 1. Surma, 58, became executive chairman and will retire by the end of the year. Longhi, 59, was tapped in April, when he held the title of president, to lead “Project Carnegie,” the steelmaker's initiative to improve and maximize results. He is viewed by analysts as having the background to help reverse the company's slide.
U.S. Steel shares closed at $23.98, up 32 cents. The stock has gained about $6 a share since Longhi took over on Sept. 1.
Bradford said the two operations affected by the writedown came from U.S. Steel's 2007 acquisitions of Canadian steelmaker Stelco Inc. for $1.1 billion and its $2.1 billion acquisition of Lone Star Technologies Inc.
The Lake Erie Works plant in Nanticoke, Ontario, is the newest integrated steel plant in North America, but has been mired in labor disputes. On Aug. 30, members of the United Steelworkers union approved a labor agreement after being locked out by the company since April 28, the second lockout in four years.
U.S. Steel has alternately said the flat-rolled plant is one of its most cost-competitive, but during the labor dispute said it was losing money and concessions were needed. Flat-rolled steel is used in automobiles and appliances.
The steelmaker also bought Lone Star, which Surma said at the time, “represents a compelling strategic opportunity for U.S. Steel to strengthen our position as a supplier to the robust oil and natural gas sector.”
On Friday, the company said the $1.8 billion writedown was necessary because the flat-rolled operations are affected by the long economic recovery and excess capacity, and tubular business is the victim of oversupply, high levels of imports, and manufacturing capacity being built by other steelmakers.
U.S. Steel said the flat-rolled segment has $1 billion in goodwill, and Texas Operations $800 million. Goodwill is the price, or premium, that is paid for an asset above its true value.
“The writeoff is more than I would have thought,” Bradford said. “But once you start losing money at these operations, you've got to write them down.”
In July, U.S. Steel reported a second-quarter loss of $78 million, blaming costs from the Lake Erie Works labor dispute, slower economic growth and increased repair and maintenance costs. Sales for the three-month period fell to $4.43 billion versus $5.02 billion a year earlier.
Bradford said he forecasts a 17 cents a share loss for the third-quarter, which he said is better than most other analysts estimates.
The writedown is the second significant move taken by the company since Longhi took over as CEO, Bradford said. The first was a series of management changes that included replacing the chief financial officer, general counsel and a number of other high-level managers.
Bradford believes U.S. Steel must still decide the fate of its Fairfield, Ala., plant that produces both flat-rolled and tubular products. The plant has one blast furnace that supplies both products, and Longhi must decide whether to invest $100 million to reline the furnace to better serve both products, or shut it down and install an electric arc furnace that would serve one product line or the other, amid mounting competition. The steelmaker also faces decisions on aging coke batteries at its Gary, Ind., works, he said.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Company proposes building 2 gas-fired power plants in West Virginia
- Profit increases 12% at Dick’s Sporting Goods
- Oakland firm Qualaris Healthcare’s software saves time in hospitals
- Lower tax rate to help Mylan extend buying spree
- PNC Bank to cut financing of mountaintop removal coal companies
- Shift in what powers the grid raises concerns about fuel diversity
- First Niagara depositors’ money safe, bank says
- Mylan closes $5.3B tax-lowering deal with Abbott Labs
- Rue21 adjusts for tough market
- Consumer spending dinged by declining gas prices
- Construction picks up, but workers hard to find