U.S. Steel’s Q4 2016 Earnings Review: Improved Business Conditions And Cost Reduction Initiatives Boost Results

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United States Steel

U.S. Steel reported its Q4 2016 results on January 31 and conducted a conference call with analysts the next day. [1] The company reported a significant year-over-year improvement in its earnings, driven by its cost reduction initiatives and improved business conditions in both the U.S. and Europe. These factors offset the decline in the shipments of the U.S. Flat-rolled steel division as a result of production outages in Q4. However, weak pricing in the tubular steel segment remains a concern for the company.

Q4 2016 Earnings 1

Q4 2016 Earnings 2

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The imposition of antidumping duties by U.S. trade authorities on steel imports from a number of countries, including South Korea and China, has helped improve business conditions for steel producers in the U.S. This was reflected in the higher realized prices reported by the Flat-rolled division. Better demand conditions in Europe, partly as a result of protectionist measures taken against unfairly traded steel imports, translated into higher shipments and realized prices for U.S. Steel’s European operations. An increase in oil prices helped drive growth in the shipments of the U.S. Tubular Steel division, which produces steels used in oil and gas drilling. However, the company’s tubular steel operations continue to suffer from a weak pricing environment, partly as a result of competition from imported steels. [2]

The Carnegie Way, U.S. Steel’s umbrella initiative for cost reduction and productivity improvement, helped prop up the company’s earnings, offsetting the impact of lower flat-rolled shipments. The benefits realized through the Carnegie Way initiative reflect a reduction in overhead costs and operational improvements at steelmaking facilities including yield improvements and improved blast furnace fuel mix. [2]

Going forward, U.S. Steel should benefit from the U.S. government’s intentions to help create a level playing field for domestic steelmakers vis-a-vis imported steels through protectionist measures where necessary. In addition, the company should benefit from an improved demand outlook for steel in the U.S. driven by President Trump’s infrastructure spending plan. [3] Thus, U.S. Steel is likely to continue to report improved earnings results in the coming quarters.

Have more questions about U.S. Steel? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for U.S. Steel

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Notes:
  1. U.S. Steel’s Q4 2016 Earnings Call Transcript, Seeking Alpha []
  2. U.S. Steel Q4 2016 Earnings Presentation, U.S. Steel Website [] []
  3. Trump’s Big Plans on Infrastructure Will Stay Big, Bloomberg []