ShareThis Page

$1B loss booked by U.S. Steel

| Tuesday, Jan. 26, 2016, 11:10 p.m.

U.S. Steel Corp. lost nearly $1 billion in its most recent quarter, concluding a challenging year for the Downtown-based steel producer, whose fledgling financial turnaround was sabotaged by a steep decline in energy prices and a barrage of cheap imports.

Even U.S. Steel's vaunted Carnegie Way program, which produced savings of $815 million during the year through cost-cutting and efficiency-boosting initiatives, couldn't rescue the company from the headwinds that have battered domestic steelmakers.

The difficulties aren't expected to let up in 2016. CEO Mario Longhi delivered a pessimistic outlook for the year, which included weaker results from its Tubular, Flat-Rolled and European operating segments.

“We are facing significant headwinds and uncertainty in many of the markets we serve,” he said.

After recording a profit in 2014, its first in six years, U.S. Steel's business declined quickly. The loss in the October-December quarter contributed to a full-year loss of $1.5 billion.

“Our progress is real and it is substantial, but our fourth-quarter and full-year results show that it is not yet enough to fully overcome some of the worst market and business conditions we have seen,” Longhi, who implemented Carnegie Way in 2013, said in a written statement.

Weak steel prices, caused by a flood of unfairly traded imports from China and other countries, and a drop in demand for pipe from oil and gas drillers led to a 34 percent decline in U.S. Steel's sales for the year. The company's $11.6 billion in revenue last year was the lowest amount it generated since 2009.

“The business is just terrible for the whole industry,” said Charles Bradford, president of Bradford Research Inc. in New York. “But U.S. Steel is maybe in the worst position of anybody.”

The company noted that despite the difficult market, efforts to control costs had allowed it to end the year with $755 million in cash, even after retiring $359 million debt.

But the company's cash flow in 2015 was down 77 percent from the previous year, which is a better indicator of its weakness than the large net loss, said John Tumazos, an analyst and owner of Tumazos Very Independent Research in Holmdel, N.J. The loss included $1.2 billion in one-time, non-cash charges.

After stashing nearly $1.5 billion in cash through 2014, which had been the highest level in nine years, U.S. Steel dipped into its savings to get through 2015, and “they will need it in 2016,” Tumazos said.

Longhi didn't “sugarcoat the crap,” Tumazos said, in delivering an outlook that includes continued pressure from depressed prices.

Throughout the year, U.S. Steel idled mills and other facilities in Ohio, Texas, Indiana, Minnesota and Alabama to match production to falling demand. At one point, the company had issued layoff warnings to 9,000 workers, or about 40 percent of its U.S. employees.

It halted a plan to build an electric arc furnace in Alabama, which had been considered key to improving competitiveness, and dropped a commitment to move its headquarters to a development planned for the former Civic Arena site in Pittsburgh.

In December, the company reached an agreement with the United Steelworkers on a three-year contract that included a wage freeze and some concessions on health costs, though the benefit cuts weren't as deep as the company had sought in negotiations. The union is scheduled to vote on the agreement Feb. 1.

U.S. Steel joined with other domestic producers to lobby the government for help in battling what the companies argued were unfairly traded imports. The U.S. International Trade Commission and Commerce Department have approved preliminary tariffs on several categories of steel imports, including slapping China with a 256 percent tax on corrosion-resistant steel.

“The substantive changes and improvements we are making continue to increase our earnings power,” Longhi said. “We are working hard every day to serve our customers and are well positioned to respond to improving market conditions.”

The company's net loss in October-December quarter equaled $6.83 a share. In the same quarter a year earlier, the company posted net income of $275 million, or $1.83 a share.

The loss was amplified by one-time charges related to the declining value of U.S. Steel's business. Without those charges, the company said, its adjusted net loss was 23 cents a share, which beat Wall Street predictions of a loss of 85 cents a share.

Revenue in the quarter was $2.6 billion, down 37 percent from $4.1 billion a year earlier.

The company's financial report was released after stock markets closed Tuesday. U.S. Steel closed at $7.77, up 85 cents for a 12 percent gain.

Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928.

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.