U.S. Steel Corporation ( X - Analyst Report ) , the largest integrated steel producer in the U.S., turned in an encouraging performance in the second quarter of 2012, which is quite commendable considering the recent performance of the other players in the industry.

The company’s adjusted earnings of 69 cents per share for the quarter raced past the Zacks Consensus Estimate of 50 cents. Reported net income slid almost 55% to $101 million (or 62 cents per share) from $222 million, or $1.33 per share, last year.

Revenues inched down 2% year over year to $5,017 million in the quarter but were ahead of the Zacks Consensus Estimate of $4,970 million. A strong performance from all operating segments acted as tailwinds in the quarter and enabled U.S. Steel to beat estimates.

More importantly, U.S. Steel’s European operations swung back into the black from last year. The results have been greeted positively and the stock gained nearly 11% in Tuesday morning trading.

Segment Highlights

Profits from the Flat-rolled segment dropped almost 53% year over year to $177 million. A drop in average realized price of steel to $772/ton in the quarter from $803/ton last year led to the massive decline in profits as shipments remained essentially flat.

The drop in steel prices does not come as a surprise as we have seen Nucor Corporation ( NUE - Analyst Report ) and AK Steel Holding Corporation ( AKS - Analyst Report ) also face similar constraints. Oversupply in the U.S. steel industry and increased steel imports into the domestic market have pressurized steel prices, hurting margins and profits of steel players in the process.

However, U.S. Steel Europe (“USSE”) raked in a profit of $34 million in the quarter, which is a significant improvement over last year’s loss of $18 million. The company said that the situation in Europe improved considerably from the first quarter, but it is still wary of the looming uncertainty going forward.

Although the year over year performance in Europe was nothing spectacular, with average prices going down roughly 18% and shipments dropping 16%, the sequential improvement was worth noting. Average realized prices exhibited improvement, driven by higher spot market and quarterly contract prices. Also, operating costs fell due to lower raw materials and energy costs.

The best performance of the quarter came from U.S. Steel’s Tubular segment. Profit from the segment grew to $103 million in the quarter from $31 million last year. Shipments jumped 16% from last year, and were aided by 9% increase in average realized price.

Financial Performance

As of June 30, 2012, U. S. Steel had $565 million of cash compared with $393 million as of June 30, 2011. Long-term debt increased to $3.8 billion as of June 30, 2012 from $3.7 billion as of June 30, 2011.

Outlook and Recommendation

The company expects all three of its segments to report positive results in the third quarter. However, due to macroeconomic uncertainty and sluggish growth in emerging markets, third quarter results are expected to be below second quarter results.

U.S. Steel expects average realized prices to decline in the third quarter. The tubular segment is expected to continue its positive streak into the third quarter.

We currently have a long-term Neutral recommendation on U.S. Steel. The company competes with ArcelorMittal ( MT - Analyst Report ) and POSCO ( PKX - Analyst Report ) .