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U.S. Steel reports $44 million profit

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Tuesday, Oct. 30, 2012, 8:44 a.m.

U.S. Steel Corp., the nation's largest producer, reported third-quarter earnings that beat analysts' estimates as the company sold more tubular products used in oil and natural gas drilling than expected.

The tubular segment, which includes a plant in McKeesport, had “solid results,” even as oil and gas drilling slowed and imports rose, but the steelmaker expects lower results for the final three months of 2012, CEO John P. Surma said.

The Downtown-based company's flat-rolled and European segments earned money but remain challenged by a lagging global economy.

Overall, U.S. Steel reported a $44 million profit, or 28 cents a share, for the July-September period, double the $22 million, or 15 cents, profit from a year ago. Sales declined by 8 percent to $4.65 billion.

Excluding one-time items, analysts' projected a 1-cent loss, the average of 10 estimates compiled by Bloomberg.

U.S. Steel released results while other publicly traded companies postponed reports. Financial markets remained closed for a second day because of Superstorm Sandy.

Surma said an increase in oil exploration offset reduced natural gas drilling in the first half of the year, then “oil-directed rig counts began to decrease, after reaching a peak in August” and gas rig counts also dropped.

As a result, the tubular segment reported operating income of $102 million, down from $103 million in the second quarter and $134 million a year ago.

“The whole industry is under pressure,” Aldo Mazzaferro, a New York-based analyst at Macquarie Securities USA Inc., said before the earnings were announced. “Since early September we've started to see weaker demand and utilization rates falling and steel prices falling and scrap falling so it's setting ourselves up for a fourth quarter that's going to look, on average, worse than the third. It's pretty certain to me that's going to be the case.”

U.S. Steel's flat-rolled steel products segment, profitable in the third quarter, is expected to post a loss for the current period because of lower average realized prices, lower shipments and other factors.

Economies will remain weak in Europe and emerging markets, Surma said, and the European business should be “around break-even” in the fourth. The tubular business should make a profit but well below the third quarter.

U.S. Steel shipped 5.3 million tons of steel, compared with 5.5 million tons a year earlier.

The company recorded a $27 million tax benefit for the quarter and said its three-year contract with the United Steelworkers, effective Sept. 1, resulted in a $22 million after-tax charge, or 13 cents a share, for lump sum payments of $2,000 per worker.

The deal covering more than 16,000 employees calls for a 2 percent wage increase on Sept. 1, 2013, a $500-per-employee payment in 2014 and a 2.5 percent raise in January 2015.

Two projects designed to make U.S. Steel self-sufficient in coke-making are nearly complete, Surma said, including construction of the C Battery at the Mon Valley Works' Clairton plant.

Crews are putting final sections of steel into the project, machinery is being commissioned and the first coal charge toward starting production should occur in November. Full coke production should start in early 2013, at an annual rate of nearly a million tons.

Bloomberg News contributed to this report.

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