US Steel Corporation Provides Second Quarter 2020 Guidance

by David Fleschen

United States Steel Corporation (NYSE: X) today provided second quarter 2020 guidance and an update on its latest liquidity requirements for the remainder of the year.  Second quarter 2020 adjusted EBITDA is expected to be approximately ($315) million, which excludes approximately $100 million of estimated restructuring and other charges.  The company expects second quarter 2020 adjusted diluted loss per share to be approximately ($3.06).  The company also expects its liquidity requirements through December 31, 2020 to be approximately $700 million (excluding approximately $64 million of incremental interest payments in 2020 resulting from the company’s recent senior secured notes offering), unchanged from the comparable $700 million previously disclosed on May 21, 2020.

“As expected, the second quarter is being significantly impacted by the effects of COVID-19 and the expected nonrecurring costs associated with a significant portion of our steelmaking operations being idled in the quarter.  As we mentioned on our first quarter earnings call, we expect the second quarter to mark the trough for the year,” commented U. S. Steel President and Chief Executive Officer David B. Burritt.  “At the onset of the pandemic, we took swift and meaningful action in response to stay-at-home orders, original equipment manufacturer (OEM) closures and reduced customer demand.  While the second quarter has been challenging, our optimism continues to grow as OEM restarts are progressing well and customer demand has started to return.  Still, we are continuing to identify additional management actions and operating improvements to improve our cash usage through the end of the year.  Protecting lives and livelihoods remains our top priority and by keeping our employees and communities safe and the business resilient, we can continue to meet our customers’ needs as we emerge from unprecedented market conditions.”

Burritt concluded, “Our future is now, and we have taken significant actions this quarter to advance our ‘best of both’ integrated and mini-mill steel customer-focused technology strategy.  We are delivering on our commitment to extract incremental value from our iron ore assets, having entered into new agreements that deliver incremental earnings and cash to the balance sheet in 2020 and beyond.  We continue to actively market our valuable portfolio of real estate assets and are evaluating strategic options for our UPI business and related property.  Additionally, we have identified and completed actions that position us to achieve our $200 million fixed cost reduction target a year ahead of our original 2022 goal.  Our successful senior secured notes offering in May also further enhanced our balance sheet and bolstered our liquidity.  Big River Steel remains our number one strategic priority and we are confident that we are positioned to emerge from this crisis having made meaningful progress in the execution of our ‘best of both’ strategy.”

Adjusted EBITDA Commentary

US Steel Flat-rolled segment results are expected to be significantly lower than the first quarter as the impacts from COVID-19 negatively impacted customer activity, particularly in the automotive and energy end-markets.  Second quarter customer activity is expected to mark the trough for the year as demand is beginning to improve in June.  US Steel says it responded quickly at the end of the first quarter to align our footprint with the expected reduction in demand.  These decisive actions helped to preserve cash but did not completely offset the inefficiencies of idling a significant portion of the company´s steelmaking footprint.

In Europe, market activity remained limited throughout much of the quarter due to a slow emergence from COVID-19 related economic shutdowns, particularly in the automotive sector.  Additionally, weakness in underlying demand has also negatively impacted the segment’s performance.  As a result of slow economic recovery in Europe, US Steel pulled forward a ten-day hot strip mill outage into late May 2020, originally scheduled for the third quarter.  The company also idled #1 blast furnace in late May to align melt with the planned hot strip mill outage.  The hot strip mill and the #1 blast furnace have both been restarted, as planned.

In Tubular, market conditions remain challenged.  Rig counts continue to decline, and oil prices remain at historically low levels.  As a result, demand for welded and seamless pipe has significantly declined.  Thecompany comments: "We are focused on what we can control and have indefinitely idled our Lone Star and Lorain facilities and consolidated tubular production to our Fairfield seamless mill.  We are continuing to identify ways to cut costs within the segment, including the cost reduction expected by in-sourcing our rounds production to our new electric arc furnace."  The electric arc furnace is scheduled to begin production in the second half of 2020.

Source: US Steel, Photo: Fotolia

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