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U.S. Steel: A Look at Its Annual Guidance

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U.S. Steel’s earnings guidance

During its 3Q16 earnings call, U.S. Steel Corporation (X) cut its fiscal 2016 EBITDA (earnings before interest, tax, depreciation, and amortization) guidance to $475 million. The company also reduced its net income guidance and now expects to post a net loss of $355 million this year.

We should note that this is not the first time U.S. Steel has cut its EBITDA guidance. We’ve seen wild swings in the company’s guidance as steel prices have been quite volatile this year. During its 4Q15 earnings call, U.S. Steel said that it expects its EBITDA to barely break even in 2016. Spot HRC (hot rolled coil) prices were quoted below $400 per ton. The stock fell significantly after its 4Q15 earnings release, as investors were spooked by its guidance.

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Guidance has been revised

In its 1Q16 earnings conference call, U.S. Steel gave guidance of $400 million in adjusted EBITDA for 2016, assuming the continuation of the prevailing market scenario at the time. Back then, spot HRC prices were in the ballpark of $530 per ton.

However, as spot HRC prices topped $600 per ton, U.S. Steel more than doubled its EBITDA guidance, to $850 million in its 2Q16 earnings call. Markets (MDY) re-rated the stock after its better-than-expected guidance and the stock soared ~11% after its 2Q16 earnings release.

Fallacy of annual guidance

While Nucor (NUE) and Steel Dynamics (STLD) give quarterly earnings guidance, U.S. Steel and ArcelorMittal (MT) give annual EBITDA guidance. ArcelorMittal has refrained from raising its EBITDA guidance this year despite a sharp increase in steel prices. According to MT, the company doesn’t want to mark to market its guidance every quarter. In the next article, we’ll look at the other key takeaways from U.S. Steel’s 3Q16 earnings call.

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