United States Steel (X) Q1 2012 Earnings Call April 24, 2012 2:00 pm ET Executives Dan Lesnak - John P. Surma - Chairman, Chief Executive Officer and Member of Proxy Committee Gretchen Robinson Haggerty - Chief Financial Officer and Executive Vice President Analysts Shneur Z. Gershuni - UBS Investment Bank, Research Division Brett Levy - Jefferies & Company, Inc., Research Division Luke Folta - Jefferies & Company, Inc., Research Division Kuni M. Chen - CRT Capital Group LLC, Research Division Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division David S. Martin - Deutsche Bank AG, Research Division Evan L. Kurtz - Morgan Stanley, Research Division Michael F. Gambardella - JP Morgan Chase & Co, Research Division Timna Tanners - BofA Merrill Lynch, Research Division David Katz - JP Morgan Chase & Co, Research Division Arun S. Viswanathan - Longbow Research LLC Mark L. Parr - KeyBanc Capital Markets Inc., Research Division Sohail Tharani - Goldman Sachs Group Inc., Research Division John Tumazos Aldo J. Mazzaferro - Macquarie Research David Gagliano - Barclays Capital, Research Division Michelle Applebaum Richard Garchitorena - Crédit Suisse AG, Research Division Presentation Operator
We will start the call with introductory remarks from U.S. Steel Chairman and CEO, John Surma, covering our first quarter 2012 results. Next, I will provide some additional details for the first quarter; and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on a few financial matters and our outlook for the second quarter of 2012. Following our prepared remarks, we'll be happy to take your questions.Before we begin, 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 P. Surma Thanks, Dan, and good afternoon, everyone. Thanks for joining us. Earlier today, we reported a first quarter net loss of $219 million or $1.52 per diluted share on net sales of $5.2 billion in shipments of 5.7 million tons. Excluding the loss on the sale of our Serbian operations and gains from a domestic asset sale and property tax settlements, our adjusted net income was $110 million or $0.67 per diluted share as compared to adjusted net losses of $1.03 per share last quarter and $1.16 per share in the first quarter of last year. Improving demand and pricing for our Flat-rolled and Tubular segments were the primary drivers of the increases in our operating results from the fourth quarter. Our segments' operating income was $295 million in the first quarter, a significant improvement from the $4 million we reported for the first quarter of 2011. Our Flat-rolled segment income from operations improved by $219 million or $54 per ton, and our Tubular segment continued to produce strong results, improving by $97 million as compared to the first quarter of last year.
Our Flat-rolled segment income from operations for the first quarter of $183 million. Average realized prices increased in the first quarter as increases in annual contracts and spot prices more than offset lower prices on our quarterly index-based agreements. Raw steel production and shipments reached their highest levels since the third quarter of 2008, as our utilization rate exceeded 90% at our U.S. facilities and was 83% for the entire segment. Our first quarter results also reflect the cost benefits from a strong and consistent performance by our operators. And we applaud them for their strong efforts.Our improved operating levels throughout the first quarter reflect favorable conditions in most market segments. Demand from the automotive, industrial equipment, agricultural and pipe and tube markets was good in the first quarter, yet remained volatile during the quarter in the more spot-oriented service center and converter markets. Mild winter weather positively impacted the construction segment in the first quarter. However, the overall demand in the U.S. construction market remains relatively weak. Results improved for our European segment in the first quarter. While the sale of our Serbian operations was the primary reason for this improvement as we had a loss of $17 million in Serbia in the first quarter as compared to a $67 million loss for the fourth quarter, results at U.S. Steel Košice began to improve. Results at USSK improved by $5 million as compared to the fourth quarter, reflecting lower raw materials costs and increased shipments. Shipments increased 7% in the first quarter to 972,000 tons, reaching their highest level since the first quarter of 2011. Although average realized prices were lower than the fourth quarter, spot prices reversed the declining trend they had coming into the quarter and increased throughout the first quarter. As a result of higher shipments, lower materials costs and increased spot prices, USSK did record a small operating profit in March and we entered the second quarter from an improved position.
Our Tubular segment posted another strong performance in the first quarter, operating income of $129 million. Shipments of 529,000 tons were a quarterly record for our Tubular segment. Average realized prices increased for the fourth consecutive quarter, reaching their highest level since the first quarter of 2009. These increases were partially offset by higher substrate costs for rounds and hot-rolled bands supplied by our Flat-rolled segment.Drilling activity in the U.S. continued at a high level in the first quarter. The quarterly average rig count was one of the highest in decades and continues to drive demand for energy-related Tubular Products. The transition from natural gas direct to drilling to oil and liquids-based drilling continues, with onshore drilling for oil and increased activity in the Gulf of Mexico being significant drivers for the energy sector. We're making significant progress on the development of proprietary premium and semi-premium connections, and we'll be introducing new connections this quarter to meet the increasing requirements of our customers. Our evolving family of connections, as well as increased heat treat and finishing capabilities are enabling us to meet the higher demand for these products, driven by the growth in shale resource development. In the first quarter, we opened our new Innovation and Technology Center at our Houston Tubular office. The new center presents our Tubular Products services, inspection and testing capabilities, and our commitment to the research and development required to become a full solution supplier of choice. Similar to our automotive center in Detroit, the Innovation and Technology Center was built to serve our customers, and reflects the level of commitment we have to the energy industry and the value we can offer our customers. While our markets are gradually improving, the economic recovery is certainly not complete. And we continue to focus our efforts on the opportunities we have to maximize the value of our assets and develop a world-class cost structure that can compete across a wide range of market conditions. Engineering work continues on defining the scope of an expansion of our iron ore operations at Keetac that will position us to benefit from a long-term, cost-competitive natural gas environment to produce low-cost iron units in the form of DRI that can then be used in our existing operations, or possibly in an EAF, to increase our operating flexibility. We remain focused on improving our carbon costs through both the substitution of competitively priced natural gas for coke in our blast furnaces and by increasing our overall coke self-sufficiency as our Carbonyx facility at Gary Works goes into production this year when we complete the new C-Battery at our Clairton coke plant. Read the rest of this transcript for free on seekingalpha.com