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U.S. Steel (X) Gears Up to Q1 Earnings: What's in the Cards?

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United States Steel Corporation (X - Free Report) is set to release first-quarter 2018 results after the bell on Apr 26.

The steel giant swung to a profit in the fourth quarter of 2017, helped by benefits from the investments in its assets. It reported net earnings of $159 million or 90 cents per share in the quarter against net loss of $105 million or 61 cents recorded a year ago. Adjusted earnings of 76 cents per share trounced the Zacks Consensus Estimate of earnings of 68 cents.

U.S. Steel beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one. In this timeframe, the company has delivered an average negative surprise of 40%.

U.S. Steel has outperformed the industry over the last six months. The company’s shares have rallied around 27.8% over this period, compared with roughly 11.3% gain recorded by the industry. Forecast-topping earnings performance in the last two quarters, upbeat outlook for 2018 and the Trump administration’s trade actions on imported steel have contributed to the rally in the company’s shares.


 

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.
 
Factors at Play

U.S. Steel, last month, updated its full-year 2018 guidance. For the year, the company now expects EBITDA of roughly $1.7 billion (up from roughly $1.5 billion expected earlier), considering the potential market conditions resulting from the Section 232 actions and increased shipments from Granite City Works. It expects EBITDA to be roughly $250 million for the first quarter.

U.S. Steel stated that the revised guidance considers two factors, namely, the market dynamics related to President Trump’s decision to impose 25% tariff on steel imports and the recently announced restarting of one of the two blast furnaces and steelmaking facilities at Granite City Works.

Once the restarting process is completed, U.S. Steel expects roughly 100,000 tons of incremental shipments per month from Granite City Works. The company expects the benefits from these actions to be mainly reflected in its results in the second half of this year.

The Zacks Consensus Estimate for revenues for U.S. Steel for the first quarter is $3,100 million, reflecting an expected increase of roughly 13.8% on a year over year basis.

Net sales for U.S. Steel’s Flat-Rolled segment is projected to see an 8.7% year over year increase as the Zacks Consensus Estimate for the first quarter is pegged at $2,051 million. The Zacks Consensus Estimate for net sales for the U.S. Steel Europe (USSE) unit is pegged at $775 million, reflecting a 13% rise from the year-ago quarter. Moreover, the company’s Tubular segment’s net sales for the first quarter are expected to surge 53.8% on a year over year basis, as the Zacks Consensus Estimate is $263 million.

Regarding shipments, the Flat-Rolled segment is expected to see a 1.3% year over year rise as the Zacks Consensus Estimate stands at 2,435,000 tons for the first quarter. The Zacks Consensus Estimate for shipments for the USSE unit is pegged at 1,137,000 tons, reflecting a year over year increase of 2.5%. Shipments for the Tubular segment is expected to rise 31.9% year over year as the Zacks Consensus Estimate is 190,000 tons.

With respect to pricing, the Zacks Consensus Estimate for average realized price for the Flat-Rolled unit for the first quarter is pegged at $763 per net ton, which represents a 6.1% rise from the year-ago quarter. The Zacks Consensus Estimate for average realized price for the USSE unit is $663 per net ton, representing an expected 11.6% rise on year over year basis. Average realized price for the Tubular segment is expected to increase 21.5% year over year as the Zacks Consensus Estimate is $1,333 per net ton.

Steel prices are on an upswing in the United States on the back of the Trump administration’s trade actions to curb imports, reflected by the recent sharp rise in hot-rolled steel prices. Higher steel prices are expected to support U.S. Steel’s results in the first quarter.

Meanwhile, U.S. Steel is actively engaged in improving its cost structure and operations on a sustainable basis through its “Carnegie Way” initiative that includes actions such as manufacturing process/logistics improvements and savings on selling, general and administrative (SG&A) costs. The company realized Carnegie Way benefits of $491 million for full-year 2017, mostly in its Flat-Rolled division. These actions are also expected to deliver meaningful benefits in 2018.

The company also is witnessing strong demand in the automotive space. It sees substantial opportunities in the automotive market and remains focused on bringing more products in this key market.

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

Earnings Whispers

Our proven model does not conclusively show that U.S. Steel is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Earnings ESP for U.S. Steel for the first quarter is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 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 currently carries a Zacks Rank #1, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

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

Allegheny Technologies Incorporated (ATI - Free Report) has an Earnings ESP of +5.63% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

FMC Corporation (FMC - Free Report) has an Earnings ESP of +1.43% and carries a Zacks Rank #2.  

Kinross Gold Corporation (KGC - Free Report) has an Earnings ESP of +10.93% and carries a Zacks Rank #3.  

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