United States Steel (X, Financial) released yet another quarter of good numbers. Its revenue for the fourth-quarter came in at $4.07 billion that easily beat street estimates of $3.96 billion. Also, it posted earnings of $1.83 per share, outpacing the analysts’ forecasts of $0.89 per share. This strong performance reflects smart efforts executed by the company during times when the steel industry continues to face challenges like inferior steel prices and fragile demand for energy sector.
What's driving growth
One might wonder what could drive its results. It is its Carnegie Way transformation process that has created a win-win situation for the company. Carnegie Way is focused on value creation through a disciplined and structured improvement process with the objective to earn an economic profit throughout the business cycle and deliver above market returns to its stockholders.
Looking ahead, United States Steel plans to capitalize on this strong cash position. It is determined to invest in its facilities, development capabilities, accelerate focus on innovation and technology and support the development of steel solutions. Also, most of its projects are now entangled with the Carnegie Way transformation. In fact, the company has fixed new magnetic separators across its iron ore operations. These are in turn delivering better concentrated yield, enhanced operational efficiency, boosted its pallet making capabilities and continues to minimize pallet production cost.
This will certainly deliver a better return to both its customers and stockholders in the coming years. Also, the company is now relatively at better position to exploit profitable growth opportunities when they pop up.
Tailwinds to consider
In addition, United States Steel has many tailwinds this fiscal year that should accelerate its top and bottom line performance. The carrier impact of projects implemented in 2014 should become profit accretive in 2015. The company expects these projects to deliver benefits of around $150 million in 2015. Also, it has recently completed various transformational projects like EAF at Fairfield, the lone star tubular, Fairfield tubular, and Fairfield flat-rolled facilities.
This is certainly a positive move and should bridge gap and generate economic profit across the business cycle. Additionally, U.S. Steel remains on track to complete and implement projects from substantial and grow pipeline of potential opportunities. This will perhaps drive profitable growth for the company in the future.
Furthermore, the company has invested heavily in advanced high strength steels. The company sees this high strength steels to advance its feet in automotive sectors. This should enable the company to create value enhancing solutions across its newly formed commercial entities.
Better outlook for 2015
United States Steel anticipates its Carnegie Way process to continue to generate additional benefits in 2015. It expects strong cash flow, healthy liquidity, and remains positive on sustaining its enhanced balance sheet. It forecasts healthy EBITDA guidance. It expects its EBITDA for 2015 to range between $1.1 billion and $1.4 billion.
United States Steel expects United States and Europe to deliver growth of approximately 3% and 1%, respectively. It expects steel demand to remain proportionate with GDP growth in these regions. The company sees low single digit growth rates in each of these regions, which is backed by forecasts made by World Steel Association. This will positively assist the company to improve its top and bottom line performance in 2015.
However, the company has to deal with the continuation of higher imports during the year, which is expected to remain a challenge. Moreover, the weakness in the energy sector will impact the company's Tubular segment and part of its Flat-rolled segment as the year progresses. Foreign exchange headwinds may be a setback during the year as well. Also, oil price volatility is likely to affect top line growth for the company in the coming years. And steel prices are also a challenge that the company shouldn’t ignore.
Conclusion
United States Steel is indeed a good bet. The company has done well in the difficult situations and is expected to do even better in coming years. Moreover, its Carnegie Way transformation strategies are delivering rich savings. The analysts expect its earnings to grow at CAGR of 43.70% by next year. This certainly makes a good investment platform in the short-run. Moreover, the stock shares cheap valuation. It has trailing P/E of 36.38 and forward P/E of 8.87. Its balance sheet carries total cash of $1.35 billion and has total debt of $3.50 billion. It has operating cash flow of $1.49 billion and levered free cash flow of $1.30 billion.
