US Steel and AK Steel Diverge after Q3 Earnings

The earnings season for US steel companies is nearly over. On Thursday, U.S. Steel (X) reported its third-quarter earnings after the markets closed. The stock was trading sharply higher in after-market trading. AK Steel (AKS) reported its third-quarter earnings on Wednesday in after-market trading. The stock fell sharply during trading on Thursday.

U.S. Steel released its third-quarter earnings on Thursday. The company reported revenues of $3.07 billion in the third quarter. U.S. Steel generated an adjusted EBITDA of $144 million in the third quarter. Both of these metrics were at the upper end of the company’s guidance. Similarly, the company’s adjusted net loss of $35 million was in line with its preliminary results. Notably, U.S. Steel posted its second quarterly loss during President Trump’s time in office. The first loss was in the first quarter of 2017 when a surprise loss led to a massive sell-off in the stock price.

U.S. Steel was trading higher in after-market hours on Thursday. So far, the stock has fallen 36.3% on a year-to-date basis. While there has been a sell-off in the broader metals and mining space, U.S. Steel has experienced pressure. So far, AK Steel has outperformed its peers this year. However, the stock fell 11.6% during trading on Thursday. AK Steel released its earnings on Wednesday after the markets closed. The company missed the top-line and bottom-line estimates.

Notably, the bar was set too low for U.S. Steel. Also given the stock’s relative underperformance this year, it isn’t surprising that the stock was trading higher in the aftermarket yesterday even though its results weren’t exactly spectacular. On the other hand, AK Steel has outperformed its peers this year. The stock was especially strong in October. Given the outperformance, the stock got punished after its third-quarter earnings miss.

President Trump’s steel tariffs have come into focus this earnings season. Despite the 25% tariff, U.S. Steel fell to a loss in the quarter. AK Steel barely managed to post near break-even results. Incidentally, steel companies’ earnings have fallen sequentially this year. The outlook for the fourth quarter doesn’t look better. Usually, the fourth quarter is seasonally weak for steel companies. While domestic steel mills are pushing for price hikes, the impact would mainly be visible in the first quarter of 2020—assuming that the price hikes gain traction. While US steel prices might rise, we’ll have to watch for developments in the US-China trade war.