U.S. Steel Corp. jumped the most since the financial crisis after the country’s largest steelmaker by volume posted a surprise second-quarter profit and raised the amount of cost savings it expects to achieve in 2014.
The shares climbed 19 percent to $33.03 at the close in New York, the most since December 2008. The Pittsburgh-based company reported earnings and better-than-expected sales after the close yesterday and forecast more improvements in the third quarter.
Mario Longhi, who took over as chief executive officer of U.S. Steel in September, is trying to turn around the fortunes of the 144-year-old company amid a global oversupply of the metal and surging imports. His cost-saving initiative, named the Carnegie Way after U.S. Steel founder Andrew Carnegie, is now expected to save $435 million in 2014, the company said today, up from a previous estimate of $290 million.
“The company has started to show evidence of fundamental cost restructuring,” Ignace Proot, an analyst at Sandford C. Bernstein & Co. in New York who has a hold rating on the stock, said in a note today.
Excluding one-time items, U.S. Steel earned 17 cents a share in the second quarter, while the average of 14 analysts’ estimates compiled by Bloomberg was for a 31-cent loss. Its net loss narrowed to $18 million, or 12 cents a share, from $78 million, or 54 cents, a year earlier.
Sales were $4.4 billion, little changed at from a year earlier and ahead of the $4.2 billion average estimate.
The flat-rolled division, the company’s largest by revenue, had $30 million of operating income, compared with a $51 million loss a year earlier. In April, the company forecast the segment wouldn’t be profitable amid disruption from unusually cold weather.
Production was disrupted after a March accident at the Great Lakes plant in Ecorse, Michigan. Furnaces at the Gary Works in Indiana, U.S. Steel’s largest facility, went offline after ice stopped some raw-material shipments.
U.S. Steel attributed the surprise profit in flat-rolled to Carnegie Way savings. While the division’s shipments fell 5.4 percent to 3.5 million tons, it average realized price climbed 6.8 percent to $774 a ton.
Workers “were able to counter the issues we were dealing with with a lot of creativity,” Longhi said today on a conference call with analysts. “That was a primary driver that drove the results that you saw. To a degree, it surprised us too.”
Earnings at the company’s European operations “increased quite significantly,” Bernstein’s Proot also said. There was gains at the tubular-steel unit, too.
U.S. Steel’s operating income in the third quarter will rise “significantly” from the preceding three months as the company returns to normal operating levels, Longhi said in yesterday’s earnings statement.
“Steel consumption has bounced back quite well,” he said on today’s call. “The market is consuming flat-rolled at a rate well above 2013 levels.”