2Q16 Earnings Call: Will U.S. Steel Raise Its 2016 Guidance?

On its 1Q16 earnings conference call, U.S. Steel Corporation (X) gave guidance of $400 million in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for 2016—assuming the continuation of the prevailing market scenario at the time. It’s important to note that while U.S. Steel and ArcelorMittal give annual earnings guidance, Nucor (NUE) and Steel Dynamics (STLD) give quarterly guidance.

When U.S. Steel gave its 2016 EBITDA guidance, spot HRC (hot rolled coil) prices were in the ballpark of ~$500 per short ton. Since then, spot HRC prices and spot CRC (cold rolled coil) prices have risen by more than $100 per short ton.

According to U.S. Steel, if it was capable of generating EBITDA of $400 million at spot HRC prices of ~$500 per short ton, it could end up posting even higher EBITDA this year due to current spot steel prices. Wall Street analysts expect U.S. Steel to post adjusted EBITDA of $551 million in fiscal 2016 and $811 in fiscal 2017.

One would expect U.S. Steel to increase its 2016 guidance during its 2Q16 earnings call. However, U.S. Steel might be conservative and not increase its 2016 EBITDA guidance. US spot steel prices might have already peaked. Recently, prices saw some downward correction. We could see more downward pressure on steel prices later this year. Read Steel Industry Mid-Year Review: Can the Party Continue? to learn more.

In 1Q16, ArcelorMittal (MT) was also conservative. It didn’t raise its 2016 EBITDA guidance despite the increase in spot steel prices. According to ArcelorMittal, the company doesn’t want to mark to market its guidance every quarter. This could be a valid argument based on the volatility in commodity markets (GCC).

In the next part of the series, we’ll see if U.S. Steel can generate positive free cash flow in 2Q16.