Key Takeaways From U.S. Steel’s Q1 Results

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United States Steel

U.S. Steel (NYSE: X) reported its first-quarter results on April 26 and conducted a conference call with analysts the following day. The company reported a substantial increase in earnings and reported adjusted EPS of $0.32 per share in Q1 vis-à-vis a net loss of $0.83 per share reported a year ago. Revenue also displayed significant improvement by increasing by almost 16% year-on-year (y-o-y). Despite reporting slightly better than expected results, the company’s share price slumped as investors became more cautious about the company’s ability to realized its full-year EBITDA guidance.

U.S. Steel’s Q1 revenue rose as a result of higher shipment volume and higher average price realization. The company’s total shipment rose by 5% y-o-y, with most of this growth derived by the U.S. Flat-Rolled division and the Tubular segment. Favorable demand environment for both products has helped increase shipment volume for both segments. Average realized prices were also higher compared to the same period last year, with the average price for its U.S. Flat-Rolled products increasing by almost 3% per ton and the average price for the Tubular segment increasing significantly by 26% per ton. The significant outperformance of the company’s Tubular segment is largely attributable to the recovery in the global crude oil prices.

With the improving steel market conditions, the company recently announced the restart of a blast furnace and steelmaking facility at Granite City Works, which is expected to add 100,000 tons of shipments per month by the second half of the year. However, the company highlighted that it is facing “operational challenges” at its steelmaking facility in Great Lakes, which is expected to have negative impact of about $30 million on EBITDA in the second quarter. Although full-year EBITDA guidance is expected to range between $1.7 – $1.8 billion vs an initial EBITDA guidance of $1.7 billion for 2018, the market read this news negatively as it indicated that the company would not be able to fully realize the expected benefits from its ongoing revitalization program. This was further exacerbated by the uncertainty surrounding the potential benefit of U.S. steel tariffs, and led to a plunge in the company’s stock price by almost 14% in the 2 days following the release of its results.

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We have changed our 2018 valuation multiple to account for these recent developments. You can make changes to our assumptions using our interactive dashboard to arrive at your own fair price estimate for the company.

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