U.S. Steel Misses, Warns; Stock Drops

U.S. Steel posts disappointing fourth-quarter results and warns that the first quarter will be worse than many expected.
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(U.S. Steel earnings item updated for closing stock prices.)



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U.S. Steel

(X) - Get Report

tossed a wet blanket Tuesday on any hope among investors that a rebound in demand for steel would show up on the company's books in the short term.

In its quarterly financial report, released before Tuesday's opening bell, U.S. Steel chief John Surma warned that the company would post a wider-than-expected loss in the first period of 2010.

That warning came on top of an already disappointing fourth-quarter loss of $267 million, or $1.86 a share. The company said it took a charge of nearly $50 million, or 21 cents a share, to pay for "environmental remediation costs" at a former plant, and a per-share charge of 7 cents for foreign currency losses. But it also enjoyed a tax windfall of about 25 cents a share.

Excluding all that, then, the company still missed expectations. According to a survey by Thomson Reuters, analysts were calling for a loss of $1.44 a share.

In one piece of good news, U.S. Steel surpassed analysts' revenue expectations for the fourth quarter, posting a top line of $3.4 billion, above Wall Street targets of $3.09 billion.

Looking ahead to the first quarter, Surma said to expect a loss "in line" with the red ink the company just disclosed for its fourth period. Analysts were expecting a first-quarter loss of 44 cents a share.

The lackluster outlook was especially jarring since so much optimism had surrounded U.S. Steel in recent weeks. Its shares had soared, touching a 52-week high on Jan. 11, as bouyant feelings about a recovering economy

gave investors hope that demand for steel would improve

sooner rather than later.

Blindsided by the sudden dampening of expectations, investors punished the stock in frantic trading Tuesday. Shares of the Pittsburgh manufacturing icon closed the session at $49.61, down $6.62, or 11.8%. Volume reached 41.3 million shares, more than triple the daily average turnover in the name.

Among the reasons for the miss and the disheartening short-term outlook: U.S. Steel hasn't hiked prices as much as observers have anticipated, said Mark Parr, an analyst at KeyBanc Capital Markets, in a note to clients Tuesday.

U.S. Steel said the average selling price for its core product, flat-rolled steel, came to $633 a ton, below Parr's estimate of $666 a ton. He said this likely resulted from an unfavorable product mix -- that is, the company sold more lower-margin products than wider.

Sales volumes appeared to meet expectations. The company shipped 3.2 million tons of flat-rolled steel during the fourth quarter and 4.7 million tons of steel overall.

Leo Larkin, meanwhile, a stock analyst at Standard & Poor's, cut his price target on U.S. Steel to $35 from $43 based on the company's profit warning. He maintained his sell rating on the stock. "It appears to us that

the company's earnings recovery will lag that of its peers," Larkin wrote in a note Tuesday morning.

Year-over-year comparisons were unsurprisingly ugly. A year ago, the company earned $290 million, or $2.50 a share, on revenue of $4.5 billion. It marked the last time U.S. Steel turned a profit.

Said Surma in a prepared statement, "We expect to report an overall first quarter 2010 operating loss in line with the fourth quarter 2009 as gradually improving business conditions are not yet fully reflected in our operating results."

Surma tried to offer up some positive spin. He indicated that several business segments were rebounding, including steel for auto and appliance makers. Customer order rates for these and other end markets in North America and Europe "are at or near their highest level in twelve months," Surma said.

U.S. Steel peer


(NUE) - Get Report


reported fourth-quarter results Tuesday

, though it handled the process far better than the U.S. Steel, having already scaled back Wall Street expectations in December. Nucor shares gave up 57 cents during the regular session to close at $43.56.

-- Written by Scott Eden in New York


>>Nucor Posts Profit, but Outlook Murky

>>AK Steel Shares Spike on Earnings Beat

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