In the previous part of the series, we saw that US Steel’s (X) profitability went up in 4Q14, despite a fall in steel shipments. The increase in profitability was due to benefits that US Steel has realized under its Carnegie Way program. You can read more about Carnegie Way in our series US Steel takes steps in transformation.
Realized benefits in 2014
In 2014, US Steel realized benefits of $575 million under Carnegie Way. The above chart shows an analysis of these benefits. As you can see, the company realized almost half of these benefits in manufacturing. These benefits are productivity-related gains that US Steel achieved in 2014.
Supply chain and logistics accounted for more than one third of Carnegie Way benefits. US Steel’s working capital was higher as compared to other steel plays, as it was paying its suppliers earlier than when its peers were paying.
On the receivables side, the company was taking more time to collect payment from its customers. US Steel’s trade terms were much more lenient compared to its peers like ArcelorMittal (AKS), AK Steel (AKS), and Nucor (NUE). AK Steel currently forms 3.87% of the SPDR S&P Metals and Mining ETF (XME).
Lower working capital
Companies have to invest capital towards their working capital. Generally, this capital is in the form of short-term borrowings. These borrowings have interest costs attached to them. As a result, the interest expense of companies increases if they have higher working capital. By reducing its working capital requirements, US Steel has been able to bring down its debt levels.
We’ll discuss US Steel’s debt ratios and the Carnegie Way program in more depth in the next part of this series.