Reviewing United States Steel Corporation (NYSE: X)'s first-quarter results, Jefferies said operational issues have reemerged, weighing hard
on the flat-rolled segment.
Technical Take
The stock was down a whopping 20.25 percent at $24.85 in pre-market trading. The 200-day simple moving average is currently at
$28.08 and could present support to the stock, considering it is headed southward in reaction to the results. If this support
doesn't hold, the stock could look to cling onto a long-term support around the $22 area.
Source: Y Charts
Q1 Print
Analysts Seth Rosenfeld, Martin Englert and Alan Spence noted that United States
Steel reported a first-quarter loss of $0.83 per share, wider than both the $0.22 per share loss they estimated and the
consensus estimate for a loss of $0.35 per share. The adjusted EBITDA came in at
$74 million, below their $220 million forecast and the consensus of $244 million, the analysts added.
The analysts clarified that the adjusted results exclude $35 million of charges associated with the closure of Tubular assets
but include $20 million of LIFO expense compared to the $40-million income in the previous quarter within the flat-rolled
business.
Problems Galore At Flat Rolled
Jefferies attributed the $63-million operating loss to a 9-percent revenue miss, higher costs and operating expenditure, with
the problem centered on its flat-rolled business. Outlining the problems at the flat-rolled segment, Jefferies said:
- Volumes: Down 6.6 percent.
- ASP: Down 2.6 percent.
- Revenues: Missed estimates By 12.1 percent.
- Operating Loss: $90 million or $37 per ton versus Jefferies' Estimate for $119 million operating profit or $46 per ton
profit, as higher raw material costs, outage expense, restarts and a $60-million net sequential change to LIFO expense served as
drags.
The Bright Spots
Jefferies noted that tubular and Europe ringed in results modestly better than expected, with an operating loss of $57 million
in tubular, $13 million above forecast and income of $87 million in Europe versus forecast of $35 million.
Explaining the better-than-expected results in tubular and Europe, Jefferies said, "Sequentially better earnings in USSE stemmed
from improved ASP's principally, partly mitigated by lower volumes and increased raw material costs. Tubular earnings increased QoQ
as a result of higher ASP's, volumes, reduced spending and inventory write downs, partly offset by increased substrate costs."
Accounting Changes A Tailwind
Jefferies sees the accounting change the company effected in changing the accounting for PP&E from a group method to unitary
as a tailwind. This, according to the firm, would allow the company to capitalize an increased portion of its maintenance/outage
spend, provided investment is associated with extended asset life, helping to trim operating expenses by $175 million
year-over-year.
Guidance Disappoints As Well
For 2017, the company expects EBITDA of $1.1 billion, net earnings of $260 million and earnings per share of $1.50. The firm
indicated that the EBITDA guidance trails its previous estimate of 1.4 billion to $1.8 billion and the company's previous guidance
of $1.3 billion. This is despite market conditions improving since last quarter.
The firm also noted the management's commentary that earnings would be impacted by efforts to accelerate "asset revitalization"
plans, with annual costs expected to increase by $300 million in 2017 versus previous guidance of $200 million.
"This may be the best long-term strategic choice for the company to pursue, and it may also be an increasingly necessary step
following years of under spending. But, the disruption caused by these efforts will ultimately cap X's ability to participate in
currently favourable markets," Jefferies opined.
Jefferies continues to rate U.S. Steel a Buy, with a $50 price target.
At last check, shares of U.S. Steel were down 26.06 percent at $23.01.
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Latest Ratings for X
Date |
Firm |
Action |
From |
To |
Apr 2017 |
Macquarie |
Upgrades |
Underperform |
Neutral |
Apr 2017 |
Longbow Research |
Initiates Coverage On |
|
Neutral |
Feb 2017 |
Cowen & Co. |
Upgrades |
Market Perform |
Outperform |
View More Analyst Ratings for
X
View the Latest Analyst Ratings
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