United States Steel (X)

Q2 2010 Earnings Call

July 27, 2010 2:00 pm ET

Executives

Gretchen Haggerty - Chief Financial Officer and Executive Vice President

John Surma - Chairman, Chief Executive Officer, Member of Proxy Committee and Member of Executive Management Committee

Dan Lesnak -

Analysts

John Tumazos - Independent Research

Kuni Chen - BofA Merrill Lynch

Timna Tanners - UBS Investment Bank

Anthony Rizzuto - Dahlman Rose & Company, LLC

Mark Parr - KeyBanc Capital Markets Inc.

Charles Bradford - Bradford Research

David Lipschitz - Credit Agricole Securities (USA) Inc.

Luke Folta - Longbow Research LLC

David Gagliano - Crédit Suisse AG

Michelle Applebaum - Michelle Applebaum Research

David Katz - CIBC World Markets

Brian Yu - Citigroup Inc

Sal Tharani - Goldman Sachs Group Inc.

Mark Liinamaa - Morgan Stanley

Michael Gambardella - JP Morgan Chase & Co

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the United States Steel Corp. Second Quarter 2010 Earnings Conference Call and Webcast. [Operator Instructions] I'd now like to turn the conference over to Dan Lesnak, Manager of Investor Relations. Please go ahead.

Dan Lesnak

Thank you, Linda. Good afternoon, and thank you for participating in United States Steel Corp.'s Second Quarter 2010 Earnings Conference Call and Webcast. We'll start the call with some brief introductory remarks from U.S. Steel Chairman and CEO, John Surma. Next, I will provide some additional details for the second quarter. And then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on the outlook for the third quarter of 2010. Following our prepared remarks, we'll be happy to take any questions.

Before we begin, however, I must caution you that today's conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today's call. For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with the Safe Harbor provisions.

Now to begin the call, here is U.S. Steel Chairman and CEO, John Surma.

John Surma

Thanks, Dan. Good afternoon, everyone. Thank you all for joining us again. Earlier today, for the second quarter, we reported a quarterly net loss of $25 million or $0.17 per diluted share, a significant improvement from the first quarter, as we return to profitability in our North American Flat-rolled segments, and we had continued improvement in our already profitable European and Tubular segments. As you likely have noted, the net loss included a foreign currency loss that decreased net income by $0.62 per diluted share, which is more fully discussed in our earnings release text.

In the second quarter, we had another strong operating performance, as our facilities ran very well, producing good results for each of our reportable segments. However, due to the foreign currency loss and an unusually large tax provision, not all of the benefit from our strong operating performance got to the bottom line. And while we do not normally look back to prior year quarters in these discussions, permit us to note with pleasure that our segment income from operations improved by more than $750 million over the second quarter of 2009 during the depth [ph] (0:04:31.5) of the steel recession.

Now turning to our operations. We reported second quarter income from operations of $198 million compared to a $57 million loss from operations last quarter and a $465 million loss from operations in the second quarter of 2009. Our segment income from operations was $241 million or $41 per ton compared with a loss of $13 million or $2 per ton in the first quarter. The $254 million improvement in our quarterly segment operating results from the first quarter was primarily due to a $178 million improvement in our Flat-rolled segments and a $51 million improvement in our Tubular segment.

As a result of the significant improvements for the Flat-rolled segment in the second quarter, all of our reportable segments were profitable for the first half of 2010. The improvement in Flat-rolled results for the second quarter was primarily due to the benefit of higher average realized prices and shipments, lower energy cost and increased production volumes. The benefits from these items were partially offset by higher facility repair and maintenance costs and higher costs for purchased coke and scrap.

Our Flat-rolled raw steel capability utilization rate increased to 82% in the second quarter, our highest quarterly operating rate since the third quarter of 2008. This reflects another strong operating performance in the second quarter, as our steelmaking facilities that operated for the entire quarter achieved a utilization rate in excess of 90%.

With the completion of the restart of operations at Lake Erie Works late in the second quarter, we had all of our facilities operating at quarter end. Shipments increased 14% to 4.1 million net tons, and average realized prices increased to $700 per net ton, an increase of $46 per net ton from the first quarter, primarily due to higher spot and index-based contract prices.

Second quarter results included approximately $60 million of repair and maintenance costs at our Lake Erie Works, where we did extensive work on the major operating units in connection with the restart of that facility.

Second quarter results for our European segment improved slightly from the first quarter, as an increase in euro-based transaction prices was offset by higher raw materials costs. Reported average realized prices for our European segment were $687 per ton in the second quarter, almost 12% higher than the first quarter average of $614. Average realized euro-based transaction prices were substantially higher in the second quarter; however, the currency translation process offset a portion of the euro-based price increases that we report to you in dollars. Shipments decreased by 9% to 1.4 million tons, primarily due to lower shipments to spot market customers.

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