U.S. Steel (X) Warms Up To Q1 Earnings: What's In The Cards?

United States Steel Corporation (NYSE:X) is scheduled to come up with its first-quarter 2019 results after the bell on May 2. The steel maker will likely face some pressure on its volumes in the quarter. Moreover, weaker U.S. steel prices may weigh on its bottom line.

Shares of U.S. Steel are down around 14.1% year to date, underperforming the industry’s rise of roughly 4.5%.

Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

U.S. Steel, in its fourth-quarter call, said that it expects adjusted EBITDA for the first quarter at roughly $225 million, which excludes the expected impacts of fire at its Clairton coke making plant. The guidance reflects a decline from $255 million the company recorded in the year-ago quarter as well as its fourth-quarter adjusted EBITDA of $535 million.

The company envisions EBITDA in the Flat-rolled unit for the first quarter to improve on a year-over-year basis, mainly due to higher average realized selling prices, partly offset by increased raw materials costs.

For the U.S. Steel Europe (USSE) segment, the company expects first-quarter EBITDA to be lower on a year-over-year basis factoring in lower volumes, higher raw materials costs and unfavorable currency impact.

For the Tubular unit, U.S. Steel sees EBITDA to improve year over year in the first quarter, mainly due to higher average realized selling prices and higher volumes, partly offset by increased steel substrate costs.

The Zacks Consensus Estimate for revenues for U.S. Steel for the first quarter is $3,245 million, reflecting an expected increase of roughly 3.1% on a year over year basis.

Shipments for the company’s Flat-Rolled segment are projected to see a 4.9% decrease on a sequential comparison basis as the Zacks Consensus Estimate for the first quarter is pegged at 2,600,000 tons. For the Tubular segment, shipments are expected to rise 1.9% sequentially, as the Zacks Consensus Estimate is 220,000 tons. The same for the USSE unit is expected to fall 5.9% sequentially as the Zacks Consensus Estimate is 1,010,000 tons.

The Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for the first quarter is pegged at $778 per net ton, which represents an expected 5.5% decline from the sequentially prior quarter.

Average realized price for the Tubular segment is expected to decline around 2.6% sequentially as the Zacks Consensus Estimate for the first quarter is $1,450 per net ton. The same for the USSE unit is expected to fall 4.2% sequentially as the Zacks Consensus Estimate is $657 per net ton.

Factors at Play

U.S. Steel is expected to face some headwinds from lower expected steel shipments in the March quarter. The company will likely witness some pressure on shipment volumes across its Flat-Rolled and USSE units in the quarter due to outages. Some additional headwinds are expected to come from elevated raw material costs, including for coal.

Weaker steel prices are another concern. U.S. steel prices weakened during the fourth quarter of 2018 on concerns over a slowdown in steel demand in China, the world’s top consumer, amid a slowing Chinese economy.

The benchmark hot-rolled coil steel prices went downhill in January 2019. While prices recovered in February and have stabilized since then, they are well below their peak level reached in July 2018. As such, weaker steel prices may weigh on U.S. Steel’s performance in the first quarter.

Nonetheless, U.S. Steel should benefit from its actions to improving its cost structure and operations. The company is implementing an asset revitalization plan at its Flat-Rolled segment aimed at improving its profitability and competitiveness. These actions are expected to deliver margin benefits.

Zacks Model

Our proven model does not show that U.S. Steel is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for U.S. Steel is -27.45%. This is because the Most Accurate Estimate is currently pegged at 12 cents while the Zacks Consensus Estimate stands at 17 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Steel currently carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some other companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Arconic Inc. (NYSE:ARNC) has an Earnings ESP of +5.06% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eldorado Gold Corporation (NYSE:EGO) has an Earnings ESP of +21.05% and carries a Zacks Rank #3.

Ingevity Corporation (NYSE:NGVT) has an Earnings ESP of +6.77% and carries a Zacks Rank #3.

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