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U.S. Steel says cost savings rise to $290M

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By John D. Oravecz
Wednesday, April 30, 2014, 11:00 a.m.
 

Small ideas that are part of the Carnegie Way strategy to cut costs at U.S. Steel Corp. are adding up to big savings — and an extra $140 million in 2014.

Chief Financial Officer David B. Burritt said the additional savings increase 2014 benefits to $290 million. Hundreds of ideas are being pursued, he told analysts on a conference call Wednesday, some with immediate impact.

“These are not targets or projections; these are actual results of projects and improvements that have been implemented,” Burritt said. “There are enough that when you add them up, it comes out to a big number.”

Two bigger projects were mentioned. One in Europe will increase blast furnace efficiency and yield about $30 million. And insourcing of contract work at several plants is part of project that will yield about $20 million.

Burritt said U.S. Steel is also building cash to invest in products and has $1.1 billion, compared to $600 million at the end of 2013.

That could come from reducing inventory, getting customers to pay bills sooner, and paying expenses later, analysts say.

Downtown-based U.S. Steel a day earlier reported a first-quarter profit, despite operational issues caused by winter weather affecting Lake Superior — mainly delays in shipping iron ore from its Minntac operations in Minnesota.

“We believe the operational difficulties will be behind us as we exit the second quarter,” CEO Mario Longhi told analysts Wednesday.

The company said those problems were offset by improved prices and expense cuts from Carnegie Way, which is intended to lift performance after a five-year slump in earnings and stock price.

Despite the quarterly profit, the company forecast reduced income from operations and a loss in its flat-rolled segment for the second quarter, which began April 1.

Shares fell 1.2 percent, down 32 cents, closing at $26.02. The stock is down 11.2 percent this year.

Analyst John Tumazos of Tumazos Very Independent Research of Holmdel, N.J., estimated the company will lose 700,000 tons of finished steel because of shutdowns, about 15 to 18 percent of normal volume. The impact on profit could be $1 to $2 per share, Tumazos said.

“There is an issue of how well they control the damage,” he said, in terms of business lost to competitors, discounts required to retain or recapture business, and whether impatient customers place import orders to keep plants running.

“A wonderful picture in the second quarter would be if they lose less than $100 million,” Tumazos said.

U.S. Steel said first-quarter net income was $52 million, or 34 cents a share, compared to a net loss of $73 million, or 51 cents a share, a year ago. Sales for the January-March period fell to $4.45 billion, from $4.6 billion last year.

Ice on Lake Superior was the worst in 30 years. It slows delivery of ore to plants in Gary, Ind., the company's largest, and elsewhere. Ore-carrying boats still require a Coast Guard icebreaker to get through, Longhi said. Trips that typically take 70 days are requiring 120, he said.

On April 2, U.S. Steel warned customers of the Gary Works about a blast furnace and steelmaking shutdown. In addition, it idled three furnaces at the Great Lakes plant in Ecorse, Mich., because of a March 27 roof collapse.

Longhi said crews should complete repairs at the Great Lakes steel shop by mid-May. The company moved some production to other plants.

John D. Oravecz is a Trib Total Media staff writer. Reach him at 412-320-7882 or joravecz@tribweb.com.

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