U.S. Steel Heads for Record Low as Rout Signals More Cash Burn

  • Producer reports $999 million net loss in the fourth quarter
  • `We are facing significant headwinds and uncertainty': Longhi

U.S. Steel Corp. shares and bonds plunged as the country’s second-largest steelmaker posted its third-biggest quarterly loss on record and signaled it may burn more cash this year.

Shares slumped 14 percent to $6.72 at 9:52 a.m. in New York, reversing Tuesday’s gain and heading for the lowest closing price since at least 1991 when Bloomberg records begin. It was the steepest decline among global peers tracked by Bloomberg. U.S. Steel bonds due 2020 lost 6.2 cents on the dollar to 43 cents, pushing up the yield to a record high 34 percent.

The Pittsburgh-based steelmaker had a net loss of $999 million in the fourth quarter, compared with profit of $275 million a year earlier, it said in a statement after the close of regular trading Tuesday. The loss excluding one-time items was 23 cents a share, narrower than the 85-cent loss estimated on average by 16 analysts tracked by Bloomberg. Sales fell 37 percent to $2.57 billion.

“We are facing significant headwinds and uncertainty in many of the markets we serve,” Chief Executive Officer Mario Longhi said in the statement. “Our progress is real and it is substantial, but our fourth quarter and full-year results show that it is not yet enough to fully overcome some of the worst market and business conditions we have seen.”

‘Abysmal’ Forecast

Given the current market conditions, Longhi said results may deteriorate this year in each of the company’s steel-producing segments. On a conference call Wednesday, Chief Financial Officer David Boyd Burritt said the company will burn about $200 million in cash this year if markets don’t improve and using analysts’ earnings assumptions.

The guidance is “abysmal,” Anthony Rizzuto, a New York-based analyst at Cowen and Co., said in a note Tuesday. Assuming that current market conditions persist, the company guided to earnings before interest, taxes, depreciation and amortization of roughly break-even in 2016, well below current estimates, Rizzuto said.

In the fourth quarter, sales prices in the company’s flat-rolled segment dropped 17 percent while shipments declined 14 percent. Sales prices in the tubular division, which supplies energy companies, dropped 22 percent.

Falling Prices

Longhi has permanently closed steelmaking operations at an Alabama plant, rolled back iron-ore mining and coke production and postponed the construction of a new electric furnace as steel prices tumbled in 2015 amid high levels of imports. Longhi also idled two pipe-making facilities as plummeting oil prices gutted demand for products used by energy producers.

Fourth-quarter steel prices plummeted 39 percent from a year earlier to average $390 a metric ton. U.S. imports of all steel products in the first 11 months of 2015 surpassed 2013 levels by 22 percent from the same period in 2013, though imports fell from record levels in 2014, according to the U.S. Census Bureau.

Nucor Corp., based in Charlotte, North Carolina, is the country’s largest steelmaker and has a market value that’s now more than 11 times that of its older rival.

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