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Can Carnegie Way Help U.S. Steel Ride Out Global Demand Carnage?

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Aug. 20 2015, Updated 1:05 p.m. ET

U.S. Steel Corporation’s Carnegie Way

Until now, we have explored U.S. Steel Corporation’s (X) 2Q15 financial results. U.S. Steel’s Carnegie Way program accounted for a substantial chunk of management’s commentary during the firm’s 2Q15 earnings conference call. And rightly so, as U.S. Steel expects to realize $590 million worth of savings in 2015 thanks to the program. Now, that’s quite a big sum of money for a company that has generated negative adjusted net income in the last two quarters.

In the coming parts of this series, we’ll explore some of the initiatives that U.S. Steel has undertaken under its Carnegie Way program. But before that, let’s quickly understand what the program is all about.

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U.S. Steel’s transformation

The story of how this transformation began is actually quite interesting. In March 2013, Mario Longhi, who is the current CEO of U.S. Steel, asked a simple question to a group of company managers. The question was “Who will buy the U.S. Steel stock tomorrow?” Only a few managers reacted positively to this question. Since then, U.S Steel has embarked on an ambitious transformation plan called Carnegie Way. The chart above shows the key features of the plan.

Key features of Carnegie Way

Taking a disciplined approach, the company is working to strengthen its balance sheet with an intense focus on cash flows, improving operational efficiency, optimizing supply chain, and right-sizing its operations. U.S. Steel Corporation has had to make some hard decisions as part of this exercise.

As a result, U.S. Steel expects to better compete with mini-mills such as Nucor (NUE) and Steel Dynamics (STLD). With new-age electric arc furnaces, these companies are tough competitors.

Nucor currently forms 5.23% of the SPDR S&P Metals and Mining ETF (XME) and 2.65% of the Materials Select Sector SPDR ETF (XLB).

In the next part of our series, we’ll discuss some recent initiatives taken by U.S. Steel under the Carnegie Way program.

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