Declines in Europe, tubular lower US Steel profit

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PITTSBURGH — United States Steel Corp. reported a 14 percent drop in first-quarter earnings Tuesday as record sales failed to offset declines in its European and tubular businesses.

But the results beat Wall Street expectations, and the company forecast substantial growth in the second quarter.

The Pittsburgh-based steel producer earned $235 million, or $1.98 per share, for the quarter that ended March 31, down from $273 million, or $2.30 per share, a year earlier.

Sales jumped 38 percent to a record-setting $5.2 billion, from $3.76 billion in the first quarter of 2007, partly due to gains in the company's flat-rolled steel business in North America. Flat-rolled steel is used in products such as automobiles and appliances.

Analysts polled by Thomson Financial, on average, had predicted $1.81 per share on revenue of $5.09 billion.

John P. Surma, U.S. Steel's chairman and chief executive, said in a statement that second-quarter operating income was expected to "increase substantially" as higher prices are expected to surpass rising costs for scrap metal and other raw materials.

Profit from European operations, which has driven strong growth at the company, fell 22 percent. Results for the tubular steel business plunged 50 percent. North American flat-rolled operations, however, posted a profit gain of 60 percent, U.S. Steel said.

The results far exceeded those of the previous quarter, when Surma warned that first-quarter results likely would reflect continued volatility in U.S. Steel's three major business segments — Europe, tubular steel and flat-rolled steel.

U.S. Steel shares fell $4.19, or 2.7 percent, to close Tuesday at $151.35. The stock has traded in a range of $74.41 to $158.23 in the past 52 weeks.

The quarterly results included a $45 million reserve created as a result of a court ruling over a power supply contract and $17 million in costs linked to the acquisition of U.S. Steel Canada. That cut earnings by $45 million, or 38 cents per share.

U.S. Steel recorded a foreign currency gain of $70 million, or 59 cents per share, the company said.

Still, analyst Michelle Applebaum said she had been looking for a better performance at home from U.S. Steel.

"It was a nice uptick from the fourth quarter, but not as good as we had hoped for," said Applebaum, of Michelle Applebaum Research. "We expected to see improved cost performance at their North American operations."

Higher steel prices should improve things next quarter, said Applebaum, who has a "buy" rating on the company's stock.

Morgan Stanley analyst Mark Liinamaa attributed U.S. Steel's stock drop on Tuesday to "a larger reaction to various commodity-based stocks," rather than a reaction to the earnings.

"They're making good progress," he said. "Business conditions are in good shape."

During the quarter, U.S. Steel bought back 305,000 shares for $33 million. Also Tuesday, the company announced a dividend of 25 cents per share.

U.S. Steel is the largest U.S.-based steel-maker and the fifth-largest worldwide.

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On the Net:

U.S. Steel: http://www.ussteel.com

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