US Steel Set To Report Another Strong Earnings Quarter As Steel Tariffs Drive Prices Up
U.S. Steel (NYSE: X) will report its third-quarter results on November 2, 2018 and conduct a conference call with analysts the same day. Consensus market estimates expect the company to post an EPS (Non-GAAP) of $1.73 and revenue of $3.71 billion, a rise of approximately 90% in the earnings and 14.30% in the sales revenue as compared to the same period last year. The company is expected to benefit from a favorable market environment for steel at its home market. The 25% tariffs on the steel import in the US led to the higher price for the metal in Q3. Consequently, the company is expected to post better than expected results for yet another quarter as the domestic industry encounters robust real demand and US Steel delivers.
We have a price estimate of $32 per share for the company, which is higher than the current market price. View our interactive dashboard – Can US Steel Deliver Another Strong Quarter? – and modify the key assumptions to arrive at your own fair price estimate.
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Q3 US Steel: Lackluster Outlook Or Shining Metal Tariffs
The company delivered a strong Q2, backed by a favorable market environment for steel at its home market. However, the company’s last earnings report mentioned its third-quarter EBITDA outlook of $525 million, which is $58 million lower than what the company delivered in Q3’17. This lackluster outlook had taken a toll on the stock price and a 10% sell-off was witnessed in the stock-price movement. Nevertheless, the 25% tariff imposition on steel import has given some mass cash flow to US Steel and the company’s outlook remains positive for the remainder of the year. US Steel has upgraded its EBITDA-outlook by almost 7% to a range of $1.85-$1.90 million. We expect 7% net income margin for the company in FY18.
U.S. Steel’s Tubular division in the US remained a major growth driver for the company’s improved performance in 2018, laying out an 18% rise in shipments and a 21% rise in average price/shipment in H1’19. However, the company expects lower EBITDA margins from this division in the second half due to asset revitalization program. The company started a 52-day blast furnace outage at Great Lakes works and have additional Asset Revitalization investments scheduled at the facility to coincide with the blast furnace downtime. Further, the company’s mining operations are unable to ship pellets in Q1 too as the Soo Locks are typically closed from Mid-Jan to late March. The scenario negatively impacts financial results due to operating inefficiencies and thus a higher cost per ton shipment.
The other divisions also displayed substantial growth in the first half of 2018. The Europe division witnessed a 16.4% rise in its average price per shipment, translating into higher sales revenue from this division. Be that as it may, the company expects lower sales in Europe for the second half of 2018 due to planned outages that coincide with normal seasonal customer demand patterns. In such a manner, the seasonality which affects the production volumes impacts the financial outcome. We expect 4.7 million tons of shipments in this division, with an average price of $714 per shipment.
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