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Why US Steel increased despite a loss in the second quarter

Part 3
Why US Steel increased despite a loss in the second quarter (Part 3 of 10)

Why the flat rolled segment is the Achilles heel of US Steel

Flat rolled segment for U.S. Steel

The flat rolled segment is the largest segment for U.S. Steel in revenue terms, but it hasn’t contributed proportionately to its profits. While the net sales in this segment were almost two thirds of total revenues at U.S. Steel, it contributed only a little above 22% to its income. Now, we’ll look at some of this segment’s other key financial metrics.

flatsEnlarge Graph

Reducing shipments at the flat rolled segment

The shipments for the flat rolled segments have been sequentially lower in the last quarter results as well as the second quarter of last year. The company faced disruptions at some of its facilities. As a result, it shut down some of its old plants. This led to the decrease in shipments that are shown in the previous chart.

Decline in profitability

While the average selling prices have increased, the income from operations is down to $30 million, from $85 million last quarter. This is mainly because of the costs associated with weather disruptions. U.S. Steel incurred a cost of $150 million to restore production at the affected sites. The average cost per ton also increased by ~4% over the last quarter. As a result, the profitability per ton was affected in a big way. In the second quarter the profitability per ton stood at $9 while the corresponding figure last quarter was $23 per ton. This segment remains the least profitable for U.S. Steel.

It’s important to note that U.S. Steel Corp. (X), ArcelorMittal (MT), Nucor Corporation (NUE), and Reliance Steel & Aluminum (RS) are steel companies listed in the United States. The steel industry can also be assessed through the SPDR S&P Metals and Mining ETF (XME).

In the next section we’ll discuss the most lucrative segment for U.S. Steel. We’ll see how it contributed to the second quarter results.

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