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Earnings Preview: U.S. Steel

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United States Steel Corp.((X - Analyst Report) is scheduled to report its first-quarter 2012 results before the market opens on Tuesday, April 24. The Zacks Consensus Estimate for earnings for the quarter stands at 49 cents per share, representing an estimated year-over-year increase of 182.22%.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in two out of the trailing four quarters. The company, however, missed the Zacks Consensus Estimate on the other two occasions. U.S. Steel has delivered an average negative earnings surprise of 25.78% over the past four quarters, implying that it has missed the Zacks Consensus Estimate by that measure.

Fourth Quarter and Full-year 2011 Recap

U.S. Steel reported disappointing fourth-quarter 2011 results. Reported net loss came in at $226 million or $1.57 per diluted share. Adjusted net loss (excluding $51 million of net foreign currency losses and an $11 million after-tax environmental remediation charge) was much higher than the Zacks Consensus Estimate. For full-year 2011, U.S. Steel reported a net loss of $68 million, or 47 cents per diluted share compared with a net loss of $482 million, or $3.36 per diluted share in full-year 2010.      

Revenue in the quarter improved 14.4% year over year to $5.1 billion from $4.8 billion, slightly above the Zacks Consensus Estimate of $4.7 billion. For full-year 2011, revenue was $19.9 billion versus $17.4 billion in fiscal 2010.

Company’s Guidance

U.S. Steel expects to report a significant improvement in its operating results in the first quarter of 2012 compared with fourth-quarter 2011, mainly driven by improved average realized prices and shipments for Flat-rolled segment.

Estimate Revisions Trend

Agreement

Estimates for U.S. Steel elicit limited movements over the past 7 days with 1 analyst (out of 12) having raised his/her estimate for the first quarter while none moved in the opposite direction. There were 3 positive revisions over the past month with no downward movements.

For fiscal 2012, 2 analysts (out of 13) raised their estimates over the past 30 days with a couple of downward revisions. Over the past week, 2 analysts have lowered their estimates while none raising the same.

Magnitude

Over the last 30 days, the Zacks Consensus Estimate for the first quarter has increased by 2 cents to 49 cents per share while remaining static over the last 7 days. For fiscal 2012, the estimate has declined by 2 cents and 4 cents over the past month and week, respectively.

Our View

We believe that U.S. Steel should see better earnings in the first quarter of 2012 compared with the fourth quarter of 2011. We feel that the company’s Tubular segment will have strong results as the demand for oil country tubular goods remains strong. However, we believe that the rising costs of steel will pressure margins.

We further believe that the company’s announcement of the sale of its Serbian unit is a positive step as the unit was bearing losses and was running well below its annual capacity of 2.4 million tons for the past five years. We, therefore, expect an improvement in the European segment.

U.S. Steelcompetes with Arcelor Mittal (MT - Analyst Report) and POSCO . The company currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating. Currently, we have a long-term (more than 6 months) Neutral recommendation on the stock.

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