US Steel (X), a major producer of steel in the US and Europe, is trading nicely higher (+12%) today after reporting Q2 results last night.
In case you're not familiar, US Steel is an integrated steel producer of flat-rolled (primarily used in automotive/appliances) and tubular (primarily used for oil pipelines) steel products with major production operations in North America and Europe. Unlike a mini-mill, like Nucor (NUE) and Steel Dynamics (STLD), which makes new steel by melting scrap steel in an electric arc furnace (EAF), an integrated producer makes steel from raw materials (iron ore and coke) using what's called a blast furnace.
Turning to the Q2 results, adjusted EPS came in at a $1.07, which was much better than market expectations and up sharply from the $(0.31) loss in the prior year period. Revenue rose 21.7% year/year to $3.14 bln, which also was better than expected.
Adjusted EBITDA is always a key metric for US Steel and that jumped 170% YoY to $362 mln and it was up sharply from $74 mln in Q1. In terms of guidance, US Steel raised its 2017 EPS outlook to $1.70 from $1.50. US Steel reaffirmed its prior guidance for 2017 adjusted EBITDA at $1.1 bln.
US Steel says its facilities performed better in Q2, particularly in its Flat-Rolled segment. Better operations, combined with higher prices and volumes in all of its segments and improved results from its mining operations, helped to fuel the strong Q2 results. X says its European operations continue to deliver solid earnings and its Tubular operations continue to make progress towards returning to profitability.
Its Flat-Rolled segment improved significantly compared to Q1, primarily due to higher results from its mining operations and a second consecutive quarter of increasing prices and shipments. The higher results from its mining operations reflect the benefits from the restart of its Keetac facility to support third-party pellet sales, as well as normal seasonal improvements.
In terms of its outlook, X is seeing more bullish sentiment in the markets served by its Flat-Rolled and European segments right now, as prices have been increasing and overall demand has been stable. Its Tubular segment continues to benefit from operational and cost improvements, as well as from stronger market conditions.
In sum, if you'll recall, US Steel saw its share price tank in late April when it reported Q1 results. X had lowered its adjusted EBITDA guidance and analysts seemed puzzled that X would be lowering guidance so severely at a time when the steel industry is doing pretty well. The main reason for the decline was that X had accelerated some investments in improving and maintaining some steelmaking assets. This has led to outages, downtimes and production curtailments. However, the Q2 results are starting to show some of the benefits from that asset revitalization effort.