U.S. Steel Quarterly Outlook Disappoints on Higher Costs

U.S. Steel Corp., the country’s largest producer by volume, forecast first-quarter earnings that were worse than analysts’ estimates as it sees higher scrap prices and operating costs.

While U.S. Steel predicted a “slight improvement” at its European and tubular units, the flat-rolled segment will be close to break-even, the Pittsburgh-based company said in a statement today. Operating profit will be “comparable” to the fourth quarter, in which it posted $5 million in earnings, U.S. Steel said.

Luke Folta, an analyst at Jefferies & Co. in New York, said in a note that the guidance implies a first-quarter per-share loss. It looks like earnings will be “far worse” than the consensus outlook, said Michelle Applebaum, the managing partner at Steel Market Intelligence in Chicago. The average of 10 analysts’ estimates compiled by Bloomberg is for profit before on-time items of 26 cents a share.

“We continue to be challenged by uncertain global economic and steel market conditions,” Chairman and Chief Executive Officer John Surma said in the statement.

U.S. Steel has struggled to regain profitability since the U.S. recession that ended June 2009 as the industry suffers from excess production capacity and imports from China. The profitability in North America of producing hot-rolled coil, a benchmark steel product, has slumped 61 percent so far in 2013, according to data compiled by Bloomberg.

Earnings Beat

U.S. Steel fell 2.2 percent to $23.20 in New York. The company said its fourth-quarter net loss narrowed to $50 million, or 35 cents a share, compared with $211 million, or $1.46, a year earlier. The loss excluding a gain from settling a contract dispute was 41 cents, smaller than the 76-cent average of 19 analysts’ estimates compiled by Bloomberg.

Sales declined 6.9 percent to $4.49 billion, surpassing the $4.35 billion average of 13 estimates.

Nucor Corp., the biggest U.S. steelmaker by market value, also posted fourth-quarter earnings today that beat estimates. Profit excluding an acquisition-related expense was 45 cents a share, compared with the 30-cent average of 15 estimates.

The company said first-quarter earnings will be lower than in the fourth quarter because of an inventory-related expense. Its operating performance will be little changed in the same comparison. While construction markets show some improvement, they are still at “historically anemic levels,” the Charlotte, North Carolina-based company said.

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“The strongest end markets continue to be manufactured goods including automotive, energy and heavy equipment,” Nucor said in the statement. “High import levels, volatility in raw-material costs and general economic uncertainty are all factors that could undermine our expectations.”

AK Steel Holding Corp. said today it sees a “significantly better” first quarter and 2013 as the U.S. economy recovers. AK’s fourth-quarter loss, excluding pension and tax expenses, was 30 cents a share, the West Chester, Ohio-based company said in a statement. That was narrower than the 35-cent average of 13 estimates.

Nucor rose 0.3 percent to $47.04 and AK declined 1.9 percent to $4.03.