U.S. Steel (X) Warms Up to Q3 Earnings: What's in Store?

United States Steel Corporation X is scheduled to come up with its third-quarter 2019 results after the bell on Oct 31. The steel maker is likely to have gained from higher shipment volumes in its Flat-Rolled unit in the quarter. However, weaker U.S. steel prices are likely to have impacted its results.

U.S. Steel beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters while missed once and delivered in-line result on the other occasion. In this timeframe, the company delivered an average positive surprise of roughly 46.5%.

Shares of U.S. Steel are down around 35.8% year to date, underperforming the industry’s decline of roughly 13.3%.

 

Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

The Zacks Consensus Estimate for revenues for U.S. Steel for the third quarter is $3,005 million, reflecting an expected decline of roughly 19.4% on a year over year basis.

Shipments for the company’s Flat-Rolled segment are projected to see a 0.6% year over year increase as the Zacks Consensus Estimate for the third quarter is pegged at 2,675,000 tons. For the Tubular segment, shipments are expected to decline 18.5% year over year, as the Zacks Consensus Estimate is 150,000 tons. The same for the U.S. Steel Europe unit is expected to fall 34.8% year over year as the Zacks Consensus Estimate is 718,000 tons.

Moreover, the Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for the third quarter is pegged at $719 per net ton, which indicates an expected 16.3% decline on a year over year basis. Average realized price for the Tubular segment is expected to decline around 8.3% year over year as the Zacks Consensus Estimate for the third quarter is $1,469 per net ton.

Factors at Play

U.S. Steel, earlier this month, provided an updated outlook for the third quarter. It now expects to record adjusted loss in the band of 20-26 cents per share for the third quarter of 2019.

The revised view for the quarter is better than the downbeat guidance the company had issued last month. Earlier, the company had said that it expects to register adjusted loss per share of roughly 35 cents for the third quarter.

Moreover, U.S. Steel now envisions adjusted EBITDA for the third quarter to be in the range of $134-$144 million, higher than its previous expectations of $115 million. The projected figure excludes roughly $9 million of estimated impacts from the fire at the company’s Clairton coke making facility in December 2018 as well as estimated restructuring charges of around $54 million.

The company attributed the improved outlook to better-than-expected manufacturing performance in its Flat-rolled division, stronger shipments and a contingency gain from recovered claims arising out of the bankruptcy of a supplier.  

The company also sees preliminary total net sales in the range of $3,040-$3,075 million for the third quarter.

Benefits of the company’s actions to improve its cost structure and operations are expected to get reflected on third-quarter results. The company is implementing an asset revitalization plan at the Flat-Rolled unit aimed at improving its profitability and competitiveness. These actions are likely to have contributed to margins in the third quarter.

However, weaker steel prices may have weighed on U.S. Steel’s performance in the September quarter. The benchmark hot-rolled coil steel prices went downhill through the second quarter of 2019 and continued their slide in the third quarter, hurt by weak domestic demand and global slowdown. Higher domestic steel production has also contributed to the decline in U.S. steel prices.

United States Steel Corporation Price and EPS Surprise

 

United States Steel Corporation Price and EPS Surprise

United States Steel Corporation price-eps-surprise | United States Steel Corporation Quote

Zacks Model

Our proven model does not conclusively predict that U.S. Steel is likely to beat the Zacks Consensus Estimate this quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.

Earnings ESP: Earnings ESP for U.S. Steel is +3.86%. The Most Accurate Estimate for the third quarter is currently pegged at a loss of 27 cents while the Zacks Consensus Estimate stands at a loss of 29 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: U.S. Steel carries a Zacks Rank #4 (Sell).  

Stocks to Consider

Here are some companies in the basic materials space that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Kinross Gold Corporation KGC, scheduled to release earnings on Nov 6, has an Earnings ESP of +2.50% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CF Industries Holdings, Inc. CF scheduled to release earnings on Oct 30, has an Earnings ESP of +6.11% and carries a Zacks Rank #2.

Arconic Inc. ARNC, scheduled to release earnings on Nov 5, has an Earnings ESP of +1.42% and carries a Zacks Rank #3.

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