U.S. Steel reports 1Q profit; shareholders OK change in board elections
U.S. Steel Corp. on Tuesday reported a first-quarter profit despite operational issues caused by winter weather — which it said were offset by improved prices and expense cuts from its Carnegie Way initiative.
U.S. Steel posted quarterly results, reversing a year-ago loss, hours after shareholders approved a plan requiring the company's entire board of directors to stand for re-election annually. The move at its annual meeting is aimed at holding directors more accountable for the company's performance.
The company is battling to overcome a prolonged slump in annual earnings and stock price. It posted an annual loss last year. The Carnegie Way initiative, which was announced at its annual meeting a year ago, is intended to lift its performance.
Despite the profit in the January-march period, the Downtown-based steelmaker forecast reduced income from operations and a loss in its flat-rolled segment in the quarter that began April 1.
“We expect our production to be limited, which will temporarily slow shipments due to continued weather-related logistical issues affecting both raw materials and finished products,” CEO Mario Longhi said.
On April 2, U.S. Steel sent a letter to customers of the Gary (Ind.) Works, saying a shutdown of a blast furnace and steelmaking was caused by “unforeseen and unprecedented” ice conditions on the Great Lakes, delaying delivery of raw materials. In addition, three blast furnaces at the Great Lakes plant in Ecorse, Mich., were idled after a March 27 roof collapse. Analysts have said the events could cost millions in lost sales and repair costs.
U.S. Steel said net income was $52 million, or 34 cents a share, compared to a net loss of $73 million, or 51 cents a share, in the same period a year ago. Sales for the January-March period declined to $4.45 billion, down 3.2 percent from $4.6 billion last year.
“Higher natural gas prices and operational issues due to the weather were offset by better commercial prices and Carnegie Way benefits,” Longhi said.
But analyst Charles Bradford of Bradford Research Inc. in New York, said the results were “worse than they appeared,” citing a $17 million one-time gain from the sale of carbon emission allowances in Europe, which he said accounted for nearly one-third of U.S. Steel's net income. In addition, operating income in its tubular segment, the most profitable, fell to $24 million from $64 million a year ago. U.S. Steel said prices fell because of high import levels.
Bradford said the steelmaker still faces the cost of repairs and upcoming capital projects. “They're trying to hold onto money. They've also got spending ahead for an electric furnace at Fairfield, which costs $100 million.”
In January, Longhi said U.S. Steel intends to use an electric furnace and scrap metal to produce steel for the first time in decades, a process that is more efficient than traditional methods. It would replace an aging blast furnace at the plant in Fairfield, Ala., that requires at least $100 million in upgrades.
Operating expenses in the first quarter declined 5.1 percent from a year ago, and average prices rose 5.8 percent in the flat-rolled steel, U.S. Steel's biggest segment. Flat-rolled is used in automotive and appliances.
The steelmaker did not give details of savings from its Carnegie Way initiative, but it previously announced annual cost reductions of $175 million. More details are expected on a conference call on Wednesday.
“Our focus this year will be to continue to execute on our work with discipline and an even greater sense of urgency,” Longhi said at the company's annual meeting earlier Tuesday at U.S. Steel Tower, attended by about 50 shareholders and executives.
Shares closed at $26.34, up 61 cents, or 2.4 percent, before results were issued. The stock is down 10.7 percent this year.
The company, which has not turned an annual profit in five years, has had a staggered board for 113 years, in which a third of its members come up for election annually for three-year terms. The new plan will begin in 2017.
Critics say such boards are less accountable to shareholders because directors become too cozy with each other and may put the interests of management first. Board members who stand for election annually are under pressure to increase the company's value or risk being ousted after a year.
“Most companies have moved that way. The shareholder pressure and support for this is overwhelming, so most companies just make the change,” said Charles Elson of the Weinberg Center for Corporate Governance at the University of Delaware.
Of S&P 500 companies, 70 percent now have annual elections for every board member, up 20 percentage points from 2009, according to ISS Governance QuickScore Data.
Shareholders approved the amendment to company rules, with 52 percent of its outstanding common stock voted in favor of the change. There was no discussion on the issue at the meeting.
The U.S. Steel board twice had opposed a move to annual election of directors when shareholders recommended putting it to a non-binding vote. It decided to put the plan to a vote this year after hearing broad support from shareholders and institutional investors.
Directors elected this year will be the last to get three-year terms, allowing the new system and one-year terms to be fully implemented on the board by 2017.
At the meeting, shareholders elected four directors to serve until 2017: Richard A. Gephardt, Murry S. Gerber, Glenda G. McNeal and Patricia A. Tracey. The company currently has 13 directors.
Shareholders also heard a request from the National Center for Public Policy Research that U.S. Steel consider adopting a policy that guarantees employee jobs will not be affected by outside, legal, personal political activities.
“Earlier this month, the CEO of Mozilla was forced out of his job because he contributed to a 2008 referendum effort defining marriage in California as between one man and one woman,” said Justin Danhof, representing shareholder David Ridenour, president of the center. “The idea that a well-qualified individual could be fired for participating in a civic decision-making about marriage laws sent a shock wave across the country, especially in religious communities.
Danhof asked U.S. Steel to consider a code of conduct like Cola-Cola Co.'s, which says, “Your job will not be affected by your personal views or your choice in political contributions.”
U.S. Steel's Suzanne Rich Folsom, general counsel, said the company is conducting a policy review, and it would take Danhof's comments under advisement.
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.
- Streaming won’t mean the end of cable
- IBM to pay $1.5B to shed chip division
- PPG Industries to buy Westmoreland Supply paint store chain
- Natrona Bottling Co. keeps soda pop operation small, putting effort into craft, taste
- Fannie Mae might take 3% down
- Stocks on upswing
- Open enrollment puts varied impact of health care law back in focus
- Hackers rip into heart of open-source software
- EDMC loses $664M; executives receive six-figure bonuses
- Plastics, tech sectors crucial to cracker plants
- Universal theme park swings into Beijing