U.S. Steel's (X) Q1 Earnings & Revenues Miss, Shares Tank

U.S. Steel (NYSE:X) recorded a net loss of $180 million or $1.03 per share in the first quarter of 2017, narrower than a net loss of $340 million or $2.32 per share a year ago. The results in the reported quarter include unfavorable adjustments of $35 million or 20 cents.

Barring one-time items, the loss came in at 83 cents per share for the reported quarter that missed the Zacks Consensus Estimate of earnings of 32 cents.

Revenues rose roughly 16.4% year over year to $2,725 million in the first quarter, but trailed the Zacks Consensus Estimate of $2,921 million.

The company’s shares crashed roughly 20% in extended trading yesterday, reflecting the disappointing first-quarter results.

Segment Highlights

U.S. Steel’s Flat-Rolled segment recorded a loss of $90 million in the reported quarter against a loss of $188 million in the year-ago quarter. However, the results in the reported quarter declined significantly compared with previous quarter, mainly due to higher raw material costs, increased planned outage costs, lower results from mining operations, and restart costs related to the Granite City hot strip mill and Keetac iron ore mine.

The U.S. Steel Europe (USSE) segment posted a profit of $87 million in the reported quarter, improving from loss of $14 million recorded a year ago. The results improved due to increased average realized prices and a favorable first-in-first-out (FIFO) inventory impact. The benefits were partly offset by lower shipment volumes and higher raw material costs, particularly for coking coal and iron ore.

U.S. Steel’s Tubular segment registered a loss of $57 million in the quarter, lower than a loss of $64 million a year ago. First-quarter results improved due to higher prices, increased shipments, lower spending and the absence of an unfavorable adjustment for obsolete inventory taken in the fourth quarter. These benefits were partly offset by increased substrate costs.

Financials

U.S. Steel exited first-quarter 2017 with cash and cash equivalents of $1,326 million, almost a two-fold year-over-year increase from $705 million.

Long-term debt decreased 7.7% from previous quarter to $2,752 million. The company generated negative operating cash flow of $135 million for the three months period ended Mar 31, 2017.

Outlook

U.S. Steel noted that the market conditions have continued to improve. Concurrently, the company announced that it will focus on long-term and sustainable improvements in business model to remain a strong business partner that creates value for customers.

However, the company acknowledged that it remains exposed to a cyclical industry and aims to revitalize assets to achieve more reliable and consistent operations, improved quality and cost performance.

If market conditions remain at their current levels, U.S. Steel expects net earnings of around $260 million or $1.50 per share, and EBITDA (earnings before interest, tax, depreciation and amortization) of roughly $1.1 billion for 2017. The results for its Flat-Rolled, European and Tubular segments are anticipated to be higher than 2016.

The company believes market conditions to change in 2017 and it expects these changes to be reflected in adjusted EBITDA and net earnings.

Price Performance

U.S. Steel’s shares declined 24% in the last three months, underperforming the Zacks categorized Steel-Producers industry’s 4.3% loss.

Zacks Rank & Key Picks

U.S. Steel currently carries a Zacks Rank #1 (Strong Buy).

Other well-placed companies in the basic materials space include Akzo Nobel NV (OTC:AKZOY) , Nucor Corp. (NYSE:NUE) and Kronos Worldwide Inc (NYSE:KRO) . All the three stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Akzo Nobel has an expected long-term earnings growth of 11.1%.

Nucor has an expected long-term earnings growth of 12%.

Kronos has an expected long-term earnings growth of 5%.

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