United States Steel Corporation Reports 2013 Second Quarter Results
U. S. Steel reported a second quarter 2013 net loss of US$78 million compared to a first quarter 2013 net loss of US$73 million and second quarter 2012 net income of US$101 million. Adjusted net loss for the first quarter 2013 was US$51 million excluding an after-tax charge of US$22 million related to repurchases of US$542 million principal amount of 4.00% senior convertible notes due 2014. Adjusted net income for the second quarter 2012 was US$112 million excluding an US$11 million after-tax early redemption premium on our US$300 million 5.65% senior notes due 2013.
Commenting on results, U. S. Steel chairman and CEO John P. Surma said, "Total reportable segment and Other Businesses operating results of US$47 million reflect the effects of the ongoing lockout at our Lake Erie Works and a deceleration in global economic growth during the quarter. Our plants operated well even with increased repairs and maintenance costs."
The US$47 million, or US$9 per ton, of reportable segment and Other Businesses income from operations for the second quarter of 2013 compares to income from operations of US$94 million, or US$17 per ton, in the first quarter of 2013 and income from operations of US$330 million, or US$61 per ton, in the second quarter of 2012.
Net interest and other financial costs in the first quarter of 2013 includes a US$34 million pre-tax charge related to repurchases of US$542 million principal amount of 4.00% senior convertible notes due 2014.
For the second quarter 2013, the company recorded a tax provision of US$3 million on a pre-tax loss of US$75 million. The tax provision does not reflect any tax benefit for pre-tax losses in Canada, which is a jurisdiction where the company has recorded a full valuation allowance on deferred tax assets.
As of 30 June 2013, U. S. Steel had US$767 million of cash and US$2.5 billion of total liquidity.
Reportable Segments and Other Businesses
Flat-rolled segment results were lower than the first quarter primarily due to increased operating costs and decreased shipments. Operating costs increased due to higher repairs and maintenance costs as well as higher natural gas costs partially offset by lower raw materials costs. Repairs and maintenance costs were approximately US$30 million higher than the first quarter due to maintenance projects at Gary Works and Lake Erie Works. Shipments decreased from the first quarter primarily due to the maintenance projects and the continuing lockout at the Lake Erie Works that began on 28 April 013. Average realized prices, including the effect of a more favorable product mix, were comparable to the first quarter. The company incurred approximately US$70 million in idle facility carrying costs at its Hamilton and Lake Erie operations in the second quarter.
Second quarter results for the European segment declined compared to the first quarter due to higher iron ore costs and lower average realized euro-based prices. A general price deterioration in the spot market occurred during the second quarter due to the completion of the service center and distributor restocking experienced in the first quarter. Total shipments were comparable to the first quarter.
Second quarter results for the Tubular segment were lower than the first quarter. Total shipments were higher due primarily to increased participation with strategic program customers. Average realized prices decreased reflecting lower prices for line pipe product, continued elevated levels of imports and OCTG mix effects.
Operating profit from Other Businesses increased primarily due to a gain of approximately US$30 million from a real estate sale that occurred in the second quarter.
Commenting on U. S. Steel's outlook for the third quarter, Surma said, "Results for our Flat-rolled and Tubular segments are projected to improve compared to the second quarter; however, we expect lower results from our European segment due to a planned blast furnace outage in the third quarter. Operating results for our Other Businesses are expected to decrease compared to the second quarter to near breakeven. Total reportable segment and Other Businesses results are expected to be comparable to the second quarter."
U. S. Steel expects its Flat-rolled segment results from operations to improve based on an increase in average realized prices, lower raw materials costs, and lower repairs and maintenance costs partially offset by reduced shipments. Average realized prices are expected to increase compared to the second quarter due to increased spot market prices as well as a more favorable product mix. Shipments are projected to decrease significantly due to a blast furnace outage at the Great Lakes Works and the Lake Erie Works labor dispute. The represented employees at Lake Erie Works are scheduled to vote on the company's contract offer on 31 July 2013. If the contract is approved, the company plans to restart operations as soon as possible. This outlook does not include any effects of a restart of Lake Erie Works.
Third quarter results for our European segment are projected to decrease compared to the second quarter. A scheduled blast furnace outage will result in significantly lower shipments and increased facility repairs and maintenance costs. Average realized euro-based prices are expected to be lower compared to the second quarter as decreases in spot and contract market prices are partially offset by the positive effect of a higher percentage of value-added shipments. Raw materials costs are expected to be lower in the third quarter due primarily to lower iron costs.
The company expects third quarter results for its Tubular segment to improve compared to the second quarter. Shipments are expected to increase to support anticipated drilling activity and average realized prices are projected to be comparable. Operating costs are expected to decrease due to operating efficiencies related to higher production volumes.
On 1 July 2013, U. S. Steel entered into a supplier contract dispute settlement agreement. As a result of the agreement, U. S. Steel expects to record a pre-tax gain of US$23 million as an item not allocated to segments in the third quarter of 2013.
The company expects a minimal tax provision/benefit in the third quarter primarily due to the full valuation allowance on deferred tax assets in Canada.