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U.S. Steel: Profits Might Fall to the Pre-Trump Era

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  • U.S. Steel’s third-quarter earnings are scheduled for today after the markets close. Looking at the company’s guidance and analysts’ estimates, its third-quarter profitability could fall sharply. The third quarter could be the company’s second-worst quarterly performance during President Trump’s time in office.
  • Last year, President Trump slapped a 25% tariff on steel imports. However, the tariffs don’t seem to be having a sustainable impact on the sector’s fortunes.

U.S. Steel’s Q3 earnings

U.S. Steel (X) will release its third-quarter earnings today after the markets close. The company will hold its earnings conference call on Friday. Meanwhile, the company released its preliminary results earlier this month. The company expects to post revenues of $3.04 billion–$3.07 billion in the third quarter. Notably, the company generated revenues of $3.54 billion in the second quarter and $3.73 billion in the third quarter of 2018.

Profits expected to fall

U.S. Steel expects to post an adjusted EBITDA between $134 million and $144 million in the third quarter. The company expects to post an adjusted net loss of $35 million–$45 million in the quarter. Notably, this would be the company’s worst quarterly performance since the first quarter of 2017. During that quarter, the company posted a surprise loss, which led to a sharp fall in its stock price. U.S. Steel changed an accounting practice, which impacted its earnings during the quarter. There were also restart costs. The first quarter is seasonally weak for the company. The stock fell after its massive miss in the first quarter of 2017. U.S. Steel’s CEO at the time, Mario Longhi, left the company.

Steel prices

Steel prices rose in the first half of 2018 due to President Trump’s Section 232 tariffs and strong global prices. U.S. Steel reported sequentially higher earnings last year. However, the tables have turned this year. The company’s earnings have fallen sequentially in every quarter since the fourth quarter of 2018. Looking at the company’s guidance, the third quarter could be its second-worst performance during President Trump’s time in office. If we exclude the first quarter of 2017, the company’s third-quarter earnings might fall to the pre-Trump era. Reviving US manufacturing, especially the steel sector, was among President Trump’s key planks in his 2016 election campaign.

Trump’s steel tariffs

Last year, President Trump’s tariffs lifted steel companies’ earnings. However, prices have come under pressure since they peaked in the first half of 2018. Now, the prices have fallen to multiyear lows. U.S. Steel announced the closure of two US blast furnaces earlier this year amid falling prices. Despite the 25% tariff on imports, we haven’t seen a sustainable improvement in the sector’s health. That said, domestic steel mills are pushing for price hikes, which could help prevent another slide in prices.

We’ll follow up with the company’s post-earnings analysis. Stay tuned.

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