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U.S. Steel Shares Slump After Q2 Loss Warning, $400 Million Stock Sale Plan

US Steel CEO David Burritt said the wider-than-expected second quarter loss 'could mark the trough for the year' for the struggling industrial group.

United States Steel Corp.  (X) - Get United States Steel Corporation Report shares slumped lower Thursday after the struggling industrial group said it would raise more than $400 million in a new stock offering and forecast a wider-than-expected second quarter loss.

U.S. Steel said late Wednesday that it plans to sell 50 million common shares, a figure that could rise to 57.5 million depending on market demand, with the aim of raising around $429 million in net proceeds. U.S. Steel said it will use the case to "strengthen its balance sheet, increase liquidity and for general corporate purposes". Last month, U.S. Steel also raised $700 million from the sale of five-year bonds carrying a coupon of 12%.

The capital raising plans followed the company's warning that coronavirus shutdowns, which have idled plants around the country, would likely lead to a second quarter loss of $315 million, or $3.06 per share, nearly doubled the Street consensus forecast.

“As expected, the second quarter is being significantly impacted by the effects of COVID-19 and the expected nonrecurring costs associated with a significant portion of our steelmaking operations being idled in the quarter. As we mentioned on our first quarter earnings call, we expect the second quarter to mark the trough for the year,” said CEO Dave Burritt. “At the onset of the pandemic, we took swift and meaningful action in response to stay-at-home orders, original equipment manufacturer closures and reduced customer demand." 

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"While the second quarter has been challenging, our optimism continues to grow as OEM restarts are progressing well and customer demand has started to return," he added.

U.S. Steel shares were marked 10.5% lower in early trading Thursday to change hands at $8.39 each, a move that would extend the stock's year-to-date decline to around 25.6%.

Earlier this year, the company reduced its spending plans and tapped lenders for $800 million in near-term liquidity support amid the "unprecedented" challenges from the global coronavirus pandemic. 

It also warned of a "meaningful reduction in demand for the full fiscal year".

"Clearly 2Q'20 was abnormal for all, but this takes it to another level, and highlights what happens when a high-fixed cost producer with significant closures bumps up against exceptionally weak demand," said BMO Capital Markets analyst David Gagliano. "Looking ahead, for now we are maintaining near-term estimates on the view 3Q/4Q demand will rebound sharply. As such, while an ugly quarter, we view it more of a 'one-off/write-off' event, although the outlook remains challenging in our view."