U.S. Steel Beats Estimates on More Profitable Alloy Sales

U.S. Steel Corp. (X), the country’s largest producer by volume, reported second-quarter earnings that beat analysts’ estimates as it sold more profitable varieties of the alloy.

Excluding the cost of paying off some debt early, per-share profit was 69 cents, 20 cents more than the average of 19 estimates compiled by Bloomberg. Net income fell 55 percent to $101 million, or 62 cents a share, from $222 million, or $1.33, a year earlier, Pittsburgh-based U.S. Steel said in a statement today. Sales declined 2 percent to $5.02 billion from $5.12 billion.

Facing declining demand, U.S. Steel is seeking to sell more profitable products, such as metal treated to be stronger and lighter for use in pipes and cars. Demand from customers in the oil and natural-gas drilling industry helped make up for lower prices in its flat-rolled division, which includes steel used in appliances and manufacturing.

The company was helped by a “combination of better-than- expected contract prices plus a higher end mix in their U.S. business,” David Gagliano, a New York-based analyst for Barclays Plc, said in a phone interview today.

U.S. Steel rose 9.1 percent to $20.65 at the close in New York, the biggest gain in six weeks. The shares have dropped 22 percent this year.

Operating profit at U.S. Steel’s tubular segment more than tripled to $103 million. Shipments of the steel tubes used in drilling climbed 16 percent to 493,000 tons as the segment’s average realized price rose 9 percent to $1,706 a ton.

‘Solid Results’

“Our flat-rolled and tubular segments had solid results considering the very fragile nature of the U.S. economic recovery,” Chairman and Chief Executive Officer John Surma said in the statement.

The average number of active oil and natural-gas rigs in the U.S. rose 7.9 percent to 1,970 in the quarter, compared with 1,826 a year earlier, according to Baker Hughes Inc. (BHI)

The company sees third-quarter results below second-quarter earnings “reflecting the continued weakness in the North American, European and emerging market economies,” Surma said.

U.S. Steel also expects to reach an agreement for a new contract with the United Steelworkers without a work stoppage. The current contract expires Sept. 1.

European Division

The company’s European division had a profit of $34 million, compared with an $18 million loss a year earlier.

Selling the division’s unprofitable steel mill in Serbia contributed to the turnaround, said Gagliano, who rates U.S. Steel at equal-weight, the equivalent of a hold. The segment also benefited from sales of premium steel to automakers, who are insulated from the effects of the European debt crisis, he said.

The division is “a bit more isolated from the broader European challenges,” Gagliano said. “It’s not immune, results aren’t going to be stellar, but it’s resilient.”

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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