U.S. Steel's Sharp Slide

A number of years ago, there was a commercial for a margarine producer that carried the tagline, "It's not nice to fool Mother Nature." Now U.S. Steel (NYSE: X  ) is learning about the imprudence -- unavoidable though it may have been -- of disappointing the market.

For the quarter, the company's earnings dropped 88%, from $297 million ($2.50/share) to $35 million ($0.29/share) as compared to the same quarter of 2006. Operating expenses rose about 9% more than revenues.

The quarter was hit by one-time charges that cut the company's earnings by $117 million, or $0.98 a share from earnings. On that basis, the $2.19 in per-share earnings that the Wall Street dart throwers had apparently been anticipating was effectively in a different area code from actual numbers. As a result, the share price receded almost 7% on the announcement.

The company's gremlins in the quarter included inventory adjustments related to a pair of acquisitions and the costs of a voluntary retirement program for employees in Slovakia. At the same time, U.S. Steel's flat-rolled steel operation was flattened further in the quarter by a triumvirate that included price declines and cost escalations, along with planned and unplanned repair outages, especially at the company's Canadian operation.

But the company didn't fare much better in Europe. There, euro-based prices were hit by both high inventories and elevated imports from China. As if that weren't enough, raw materials and energy costs increased there in the quarter, while transportation disruptions hindered sales.

The current earnings season has been a mixed bag for the metals companies. Commercial Metals (NYSE: CMC  ) told us last month that its earnings had slipped, while Alcoa (NYSE: AA  ) moved us into the meat of the season by producing mixed results. Mini-mill operator Nucor (NYSE: NUE  ) saw earnings slip, and AK Steel (NYSE: AKS  ) generated earnings after posting a loss a year earlier. And finally, copper producer Freeport-McMoRan (NYSE: FCX  ) initially disappointed the markets but has since regained the resulting price decline.

For my money, however, I'd recommend that Fools shy way away from U.S. Steel. With its increasing costs and strong competition, it seems there are better places to park your pesos.

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