U.S. Steel Misses Expectations

(U.S. Steel earnings story updated with further detail from the company's fourth-quarter release.)

PITTSBURGH ( TheStreet) -- U.S. Steel ( X) didn't follow the hometown Steelers to victory.

The Big Steel operator of blast furnaces posted a much wider loss Tuesday morning than Wall Street was anticipating.

In midday trading on the New York Stock Exchange, the company's shares were bouncing between positive and negative territory on heavy volume. Most recently, the stock was up 20 cents to $54.64.

As usual, investors were keying on the outlook. U.S. Steel CEO John Surma was measured in giving one, though he said to expect a "modest improvement" in the first quarter compared with the final period of 2010.

He added that order rates and spot market prices began to rebound late in the fourth quarter, "and we remain cautiously optimistic that global economic conditions will continue to improve in the first quarter."

>>Investors Steel Selves for Steel's 2011

U.S. Steel's miss followed disappointing numbers from Steel Dynamics ( STLD) on Monday, though the smaller company issued a more bullish outlook than did U.S. Steel.

Also on Tuesday, AK Steel ( AKS) reported a narrower loss than analysts were expecting, and appeared to gladden some investors who may have been expecting a more severe squeeze due to the raw materials price inflation that has afflicted AK for going on a year.

As for U.S. Steel, the company said it lost $249 million, or $1.74 a share, in the fourth quarter. The consensus target among Wall Street analysts called for a loss of $1.11. Part of U.S. Steel's loss came from $40 million in carrying costs to account for the shutdown of two plants in Hamilton, Ontario. The company was in a labor dispute with workers over their retirement plans, but has since sold the plants to the German steelmaker Max Aicher.

Still, revenue slightly beat expectations. The company reported a top line of $4.3 billion, up 28% from a year ago. Analysts were looking for $4.2 billion.

U.S. Steel didn't spill as much red ink as a year ago. In the fourth period of 2009, the company lost $267 million, or $1.86 a share.

Investors are waiting for U.S. Steel's reputed operating leverage to kick in. When steel demand and steel prices are on the rise, U.S. Steel's profit will at some point begin to soar, since its costs are fixed (the company controls its own iron ore mines.)

The wait continues, despite a rally in steel prices across the industry during the fourth quarter. That rally drove steelmaker stocks higher as well.

In a bit of possible good news Tuesday, at least when it comes to steel demand, mill capacity utilization rose to 73% for the week ended Jan. 22, up from 71.8% the week earlier. That's the highest point in seven months. Industry analysts say that capacity utilization must reach 80% before steel pricing can remain stable.

On Tuesday, steel names were broadly lower, with the notable exception of AK Steel, as investors bid up a stock that had lagged the group over the last few months. Shares of the company were trading at $14.96, up 3.5%.

-- Written by Scott Eden in New York

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