Largest integrated steel manufacturer in North America United States Steel Corp. (NYSE: X) will release its fourth quarter earnings on January 25, 2011. In the last three quarters of FY 2010, US Steel's reported EPS missed analysts' consensus estimates in quarters ended June 2010 and September 2010, by margins of 28.60 percent and 621.70 percent, respectively. For quarter ended March 2010, the company's reported EPS exceeded analysts' consensus estimate by margin of 45.90 percent.
United States Steel Corporation produces flat-rolled and tubular products with operations in North America and Europe. The company has an annual raw steel production capacity of 31.7 million net tons (24.3 million tons in North America and 7.4 million tons in Europe). U S Steel is also engaged in other business activities, most of which are related to steelmaking, including the production of coke and iron ore pellets, and transportation services (railroad and barge operations), real estate operations, and engineering consulting services. It operates in three segments: Flat-rolled Products (Flat-rolled), U S Steel Europe (USSE) and Tubular Products (Tubular).
Q3 FY 2010 misses analysts' estimates by huge margin
For the third quarter ended September 2010, US Steel Corp. reported net loss of $51 million, or $0.35 per diluted share, compared to the net loss of $25 million, or $0.17 per diluted share, in the second quarter of FY 2010, and a net loss of $303 million, or $2.11 per diluted share, in the third quarter of FY 2009. The company reported a third quarter 2010 loss from operations of $138 million, compared with income of $198 million in the second quarter of 2010 and a loss from operations of $412 million in the third quarter of 2009. Net sales for the third quarter were $4.5 billion, representing a decrease of 4 percent sequentially. As of September 30, 2010, US Steel had $643 million in cash and $2.2 billion of total liquidity as compared to $947 million in cash and $2.5 billion of total liquidity at June 30, 2010.
The two main competitors of US Steel Corp. are Arcelor Mittal (NYSE: MT) and Nucor Corp. (NYSE: NUE). In the last one year, Arcelor Mittal has reported earnings of $2.76 per share, on revenues of $79.98 billion. Nucor Corp. has reported earnings of $0.64 per share, on revenues of $14.93 billion. Compared to US Steel's loss of $3.49 per share on revenues of $16.46 billion, the competitors' performance is far better than US Steel's performance. However, US Steel has maintained a conservative acquisition strategy, unlike its competitors, and has an integrated business model. The integrated business model that US Steel has maintained in the United States, and now striving to achieve in Europe, will help protect the company from industry wide downturns that could devastate steel companies that are exposed to raw material price fluctuations.
The metal fabrication industry has a P/E ratio of 15.20. The company has P/S ratio of 0.46, lower than the industry's P/S of 0.63.
Analysts' and US Steel's expects Q4 results to be flat sequentially
US Steel said on October 26, 2010, that it expects the fourth quarter results to be flat across its three areas of operations: Flat-rolled Products (Flat-rolled), U. S. Steel Europe (USSE) and Tubular Products (Tubular). On the other hand, for the fourth quarter of FY 2010, analysts' EPS estimates range from a loss of $1.55 to $0.42 per share, compared to the consensus estimate loss of $1.12 or $1.83 in the year ago quarter. Analysts' revenue estimates for the fourth quarter range from a low of $4.10 billion to a high of $4.30 billion, compared to a consensus estimate of $4.22 billion or $3.35 billion reported in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has been revised to a loss of $1.12 per share, from a loss of $1.11 per share estimated 7 days ago.
In 2006, the board of directors replenished the common stock repurchase program authorizing the repurchase of up to 8 million shares of U S Steel common stock. Out of which, 2 million shares and 1.2 million shares were repurchased in FY 2008 and FY 2007, respectively. As of December 31, 2009, 4.4 million shares remained authorized for repurchase. In late 2008, the company suspended its share repurchase program as part of its reaction to the economic crisis.
On October 26, 2010, the company's board of directors declared its quarterly cash dividend of $0.05 per share on the US Steel common stock.
In the last 52 weeks, the US Steel's stock has been trading in the range of $36.93 and $70.95. In the last one year, US Steel's stock has gained 18 percent to settle at $52.33 on January 19, 2011. Keeping in mind the company's expectations and analysts' estimates, I see EPS loss of $2.49 per share for full year FY 2010.
For FY 2011, based on the companies integrated business model, which will help company to get back to profits, I set EPS estimate of $3 per share. On January 19, 2011, analysts' at Deutsche Bank downgraded the stock rating to hold from previously rated buy. Based on the EPS estimates and key financials of the company, I set a one year target price of $52.
