Will Lower Prices, Shipments Hurt U.S. Steel (X) Q4 Earnings?

United States Steel Corporation (NYSE:X) is scheduled to come up with its fourth-quarter 2019 results after the bell on Jan 30. Lower shipment volumes and softer steel prices are likely have hurt the steel maker’s results in the quarter.

U.S. Steel beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters while missed once. In this timeframe, the company delivered an average positive surprise of roughly 53.3%.

Shares of U.S. Steel are down 58.1% over a year, compared with the industry’s decline of 16.8%.

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

What do the Estimates Say?

U.S. Steel, in December 2019, issued underwhelming guidance for the fourth quarter. It expects adjusted loss per share for the fourth quarter to be around $1.15. This compares to earnings of $1.82 a share the company recorded a year ago. The company also projects adjusted EBITDA for the quarter to be a loss of roughly $25 million, excluding an expected restructuring and other charges of $225 million.

For 2019, the company expects adjusted EBITDA to be roughly $682 million. The amount excludes around $285 million of estimated restructuring and other charges as well as nearly $47 million of estimated impacts stemming from the fire at its Clairton coke making facility. Adjusted loss per share for 2019 is projected at around 42 cents.

The Zacks Consensus Estimate for revenues for U.S. Steel for the fourth quarter is $2,712 million, reflecting an expected decline of 26.5% on a year over year basis.

The Zacks Consensus Estimate for fourth-quarter shipments for the company’s Flat-Rolled segment is pegged at 2,540,000 tons, indicating a 7.1% year over year decline. The same for the Tubular segment is 155,000 tons, suggesting a 28.2% year over year drop. The Zacks Consensus Estimate for shipments for the U.S. Steel Europe unit stands at 800,000 tons, reflecting a 25.4% year over year decline.

Moreover, the Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for the fourth quarter is pegged at $716 per ton, which indicates an expected 13% decline on a year over year basis.

The Zacks Consensus Estimate for average realized price for the Tubular segment is $1,335 per ton, reflecting a decline of 10.3% year over year. The same for the U.S. Steel Europe unit is pegged at $606 per ton, suggesting a 11.7% year-over-year decline.

Some Factors at Play

The company, last month, stated that flat-rolled steel market conditions are improving. However, it expects lower shipments and steel selling prices to affect results of the unit in the fourth quarter.

For the Tubular unit, the company expects commercial headwinds to dent earnings in the fourth quarter. It anticipates lower selling prices to lower margins and reduce earnings on a sequential basis in the quarter. Market conditions in Europe also remained weak in the quarter with a decline in average realized prices, the company noted.

Benefits of the company’s actions to improve its cost structure and operations are expected to get reflected on fourth-quarter results. However, weaker steel prices may have weighed on U.S. Steel’s performance in the quarter.

U.S. steel prices fell sharply through the third quarter of 2019 and also sank to a three-year low in October. Higher domestic steel production, weak steel demand across major end-markets and global slowdown contributed to the decline in U.S. steel prices.

Impacts of lower steel prices are likely to reflect on U.S. Steel’s shipments in the fourth quarter. Weaker prices also expected to have put downward pressure on its selling prices and hurt its margins in the quarter to be reported.

Zacks Model

Our proven model does not conclusively predict an earnings beat for U.S. Steel this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.

Earnings ESP: Earnings ESP for U.S. Steel is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are both currently pegged at a loss of $1.14. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Steel carries a Zacks Rank #4 (Sell).

Stocks to Consider

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

Bunge Limited (NYSE:BG) , scheduled to release earnings on Feb 12, has an Earnings ESP of +18.18% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Royal Gold, Inc. (NASDAQ:RGLD) , scheduled to release earnings on Feb 5, has an Earnings ESP of +0.78% and carries a Zacks Rank #1.

Cleveland-Cliffs Inc. (NYSE:CLF) , scheduled to release earnings on Feb 27, has an Earnings ESP of +6.25% and carries a Zacks Rank #2.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>