The U.S. Steel Industry - Are Companies Beating Or Meeting Expectations?

by: Bidness Etc

by Troy Kuhn

United States Steel Corporation (NYSE: X)

The United States Steel Corporation (X) rose 0.81% to $27.14 on July 8. The stock is up 20% since last month.

On June 2, US Steel announced that it will put two tubular facilities on standby in early August in order to operate more profitably as it repositions itself. The company management has also indicated the possibility of adding electric arc furnaces, which will considerably reduce the company's repair and maintenance costs in the future.

The company reported losses in 2013, but positive cash flows from operating activities (of $414 million) indicate that there is still some hope. US Steel says it has been affected by illegal dumping of OCTG (Oil Country Tubular Products) from Korea. Investigations into the issue are still underway.

Revenues on a year-over-year (YoY) basis declined 9.85% in the most recent quarter, and were up 4.19% on a quarter-over-quarter (QoQ) basis. For the upcoming fiscal quarter of 2014, revenues are estimated to be $4.23 billion, and earnings per share (EPS) are expected to be -$0.27.

AK Steel Holding Corporation (NYSE: AKS)

AK Steel Holding Corporation's (AKS) share price rose 1.81% to $8.42 on July 8.

The company announced on June 24, 2014 that it will raise prices of automotive grade steel by $40 per ton, and non-automotive grade steel by $200-300 per ton effective July 6. In order to reduce its per unit costs, the company has decided to vertically integrate by investing in coal and iron ore, which will make it 50% self-sufficient. However, any efforts for self-sufficiency will add little value to the company's profitability, since it is expected that by 2015, spot prices of iron ore will nearly equal the company's in-house production cost per unit.

AK Steel has significant pension liabilities and OPEB expenses, which will require an estimated cash contribution of about $200 million in 2014.

AK Steel says that despite improved conditions in steel markets, the company will witness losses in the second quarter due to mark-to-market hedging loses and the impact of extreme weather conditions. AK Steel's revenues in the upcoming fiscal quarter are estimated to be $1.5 billion, while EPS is expected to be -$0.03.

Nucor Corporation (NYSE: NUE)

Nucor Corporation (NUE) is currently valued at $49.84, having risen 0.32% on Tuesday, July 8. The stock gained due to unusual activity in call options: investors bought 20,663 call options for the stock, 938% higher than the average volume of call options in 1991. Nucor shares are currently trading at a premium to the company's peers.

The company experienced 4.36% QoQ growth in revenues for the three-month period ending March 2014, but sales were 1.94% lower from the previous year's quarter. Its operating margin narrowed to 4.89% from 5.294% last year.

With regards to a complaint filed by Nucor regarding imports of carbon and alloy steel iron rods from China, the U.S. Department of Commerce has set preliminary duties on the goods of up to 81%. This will positively impact the company's revenues in the future. For the upcoming fiscal quarter, revenues are estimated to be $5.2 billion, and EPS to be $0.40.

Steel Dynamics, Inc. (NASDAQ: STLD)

Steel Dynamics, Inc. (STLD) rose 0.17% to $18.19 on July 8.

In the first quarter of 2014, the company's revenues declined 1.86%, while the operating margin narrowed to 4.42% from 5.78% in the previous quarter. On a YoY basis, revenues were up 1.13%, but the operating margin was still lower compared to 5.36% last year.

The company stated in its earnings guidance that its second-quarter 2014 earnings will be higher than first-quarter earnings (diluted) of $0.17 per share. Estimated revenue for next quarter is $1.99 billion, while EPS is expected to be $0.32.

Disclosure: No positions