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Will U.S. Steel’s New Structure Beat the Weak Market?

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  • On Tuesday, U.S. Steel announced a new organizational structure and operating model. Earlier this month, the company also announced a strategic investment into Big River Steel.
  • Between 2014 and 2015, the company took a series of transformational steps under its Carnegie Way program.
  • Steel markets have been weak this year. Prices sagged near multiquarter lows. Companies’ stock prices have also sagged amid weak market sentiments. Given the background, will the company’s latest transformational steps help it tide the weak market?
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U.S. Steel’s new structure

On Tuesday, U.S. Steel (X) announced a new organizational structure and operating model. The company also appointed a new CFO effective on November 4. According to the company, under the new structure, Scott Buckiso “has been named Chief Manufacturing Officer North American Flat-rolled (NAFR) segment.” Currently, he’s the senior vice president of automotive solutions. Similarly, Doug Matthews, the senior vice president of industrial, service center, mining solutions, and tubular, will become the chief commercial and technology officer. The company expects to realize $200 million of annual fixed cost savings with these initiatives. On October 1, the company also announced a strategic investment into Big River Steel.

Long-term picture

U.S. Steel expects to have multi-million dollars of annual rate savings and incremental EBITDA benefits from its initiatives. Before today’s announcement, the company also had an asset revitalization plan in place. Earlier this year, the company doubled down on investments in its existing plants in a bid to realize long-term efficiencies and structurally improve its earnings. The company took a series of steps under its Carnegie Way program between 2014 and 2015. Despite these initiatives, the company turned EBITDA negative in the fourth quarter of 2015 when steel prices fell.

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Short-term pain

The company’s capex plans and other transformational steps look like a long-term positive. By revamping aging plants, the company would be in a better position to compete with mini-mills like Nucor (NUE) and Steel Dynamics (STLD). The steel industry will see even more domestic competition in the next decade as new capacity comes online.

Steel and cash burn

However, these initiatives don’t help short-term concerns. Steel markets have been weak this year. Prices sagged near multiquarter lows. U.S. Steel will likely burn cash over the next few years. While the company is touting multi-million dollars in annual run-rate benefits beginning in 2022, the short-term outlook looks hazy.

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