U.S. Steel (X) has dropped this morning after the U.S. steel giant beat earnings forecasts but offered disappointing second-quarter guidance.
Reuters US Steel reported a profit of 34 cents a share, beating the Street consensus for 32 cents, but said it would have a tough time during the second quarter.
JPMorgan’s Michael Gambardella says even the beat isn’t as good as it looks:
U.S. Steel’s 1Q14 earnings fell short of expectations, after excluding a one-time $0.10 gain from headline EPS, and management guided 2Q14 net income to a loss in large part from the impact of recent outages at the company's Gary and Great Lakes facilities which we previously estimated at 45% of Flat-Rolled capacity. We believe the loss in Flat-Rolled will still come as a negative surprise to the market which just began revising 2Q14 earnings expectations lower in recent weeks.
Nomura’s Curt Woodworth and team explain why the outages are such bad news:
Reduced volume should contribute to higher unit costs and limit X's ability to sell into a strong spot sheet market, where prices have reached close to $700/ton, as contract volumes take priority. The outages in 2Q are also expected to negatively impact the mix away from coated automotive products, a high margin product category. X didn't quantify the transitory impact from the recent outages; however, we estimate a sizable negative impact given the significant economies of scale at the affected plants.
Shares of U.S. Steel have dropped 2.9% to 25.57 at 10:03 a.m. but don’t seem to have impact other steel stocks much, if at all. Steel Dynamics (STLD) has dropped 0.6% to $18.07, while Nucor (NUE) has dipped 0.2% to $51.56. ArcelorMittal (MT), however, has gained 0.2% to $16.15 and AK Steel (AKS) has risen 0.6% to $6.92.
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