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Rustic Nomad
Rustic Nomad
Articles (188) 

United States Steel Is Down, But Not Out

April 18, 2014 | About:

United States Steel (NYSE:X) finally returned to profitability as the fourth-quarter provided a much needed breakthrough for the steelmaker. The results indeed boosted the company’s stock that grew 40% in the last one year and outperformed its rival Nucor (NYSE:NUE) by a large margin, though Nucor witnessed a 10% rise in its revenue in the last reported quarter. This shows the strong confidence the investors and market maintain in the company, while the steel maker forecasts strong prospects in the long run.

The Problems

However, the steelmaker’s stock fumbled in the beginning of the current fiscal 2014, due to the threat of cheap imports, a concern raised by all the players in the industry.

Indeed, the rising U.S. steel imports are a worry for all the steel companies as heavy steel imports from China were surging continuously till late February due to an economic slowdown that hurt the domestic demand for steel. However, these concerns eased as China announced stimulus measures in the wake of the slowing economy.

Regardless of bad weather conditions that impacted the demand for steel, United States Steel reported not so impressive, but good enough revenue of $4.27 billion versus the consensus estimates of $4.36 billion.

Getting Better

The good news for investors is that U.S. Steel is planning to use an addition $300 million in core business processes such as commercial, manufacturing, supply chain, procurement and innovation. Having faced a tough time so far, its new CEO, Mario Longhi, has done well with the company’s turnaround strategy.

He is trying to transform the business with the Carnegie Way that extends to every aspect of the company’s business such as operations, balance sheet and the company’s global picture. U.S. Steel is focused on improving its cost structure. The company is looking to additionally deliver $150 million in cost and margin improvement in the current fiscal 2014.

While the company faces many challenges such as harsh weather conditions, a pessimistic market, recent price hike announcement by mills, and scrap prices that are continuously declining, U.S. Steel remains solid.

U.S. Steel has experienced improvements in the industrial equipment market, supported by automotive growth and surging coke making capabilities. The auto sector delivered strong results in 2013 with 15.6 million units sold, and is expected to perform better in 2014. In addition to this, the steel maker has built a healthy partnership with specialty alloy maker, Carpenter Technology Corporation (CRS) in order to develop lighter, high-strength steel for automotive applications that will lead to incremental opportunity in the automotive segment.

Along with that, the service center industry is also in a better state than last year in both Canada and the U.S. Growth momentum is also seen in the construction industry, as construction square footage grew 28% in 2013.

Moreover, the company expects its soft results from the rolled segment to improve as prices and shipment will increase, backed by reduced repairs and maintenance costs. Thus, it will assist the company to accelerate growth in the flat-rolled segment to team up with the automotive segment and deliver better financial and operational results. The steel maker sees higher contract end spot market prices and improved end user demand to increase prices in the flat-rolled segment.


Analyzing these propositions, U.S. Steel’s prospects look better and promising. The company is trying to turn around and it can be a good investment for the long run.

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GuruFocus has detected 2 Warning Signs with United States Steel Corp $X.
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