Thank you Terry Bell for sharing this article: m.us.wsj/articles/BL-234B-2674 from the Wall Street Journal blogs.wsj/corporate-intelligence/2013/10/21/u-s-steels-1-8-billion-writedown-a-tough-economy-and-a-global-glut/ October 21, 2013 U.S. Steel’s $1.8 Billion Writedown: A Tough Economy and a Global Glut. ReutersBy John W. Miller After market close on Friday, U.S. Steel Corp.X +0.13% declared a surprising $1.8 billion writedown. That’s quite a mouthful for a company with a total market cap of around $3.5 billion. So what’s going on with this steel giant, which is due to report third quarter earnings on Oct. 29? The Pittsburgh-based firm offered three reasons. - The economy: U.S. Steel cited “the valuation effects of the protracted economic recovery.” - Oversupply: Global steelmaking capacity is in “excess,” U.S. Steel said, which has depressed the prices U.S. Steel can charge for the flat-rolled metal it sells to auto and appliance makers. In addition, imports and “announced additional domestic tubular manufacturing capacity” have deflated prices for the steel pipes and tubes demanded by American oil and gas companies. - Imports: U.S. Steel noted the “continued high level of tubular product imports.” They’re a consequence of oversupply — but still worth mentioning as a separate category. U.S. Steel has been depending on relatively bright fortunes of auto makers and oil and gas drillers to keep itself above water. Even so, the company lost $78 million in the second quarter, its fifth deficit in the past seven quarters. U.S. Steel did not disclose exactly which plants were responsible for the writedown, and named only business units. Analysts said the writedown involved operations acquired as part of the company’s purchase in 2007 of Canadian steelmaker Stelco Inc. for $1.1 billion and of Lone Star, TX-based Lone Star Technologies Inc. for $2.1 billion The writedown suggests it thinks rising costs could be a problem and that its auto and energy customers are going to pay lower prices, squeezing profits. The market showed little response early Monday: U.S. Steel shares were flat in trading on Monday morning. The announcement is a sign the company is willing to take some hits in the name of long-term health. CEO Mario Longhi took over from John Surma at the beginning of September, and “new CEOs like to clean house,” said Charles Bradford, an analyst with Bradford Research Inc. Employees say Mr. Longhi has begun carrying out his cost-cutting program known as “Project Carnegie.” That includes bringing efficiency experts into blast furnaces and making employees itemize expenses down to exactly what they eat at restaurants on business trips. Although Mr. Longhi has been tight-lipped, refusing to give interviews, the market clearly is impressed with the reputation of the Alcoa Inc. and Gerdau Ameristeel Corp. veteran. U.S. Steel’s stock price has increased over 30% since Mr. Longhi took over.
Posted on: Tue, 22 Oct 2013 00:11:18 +0000
Trending Topics
Recently Viewed Topics
© 2015