U.S. Steel (NYSE: X) will release its quarterly report on Monday, and after years of sluggish activity levels in the steel-production business investors have started to anticipate a potential recovery for the company. In order for U.S. Steel earnings to recover to consistent profitability, it will not only have to see more favorable industry conditions but also hold off efforts from ArcelorMittal (NYSE: MT), Nucor (NYSE: NUE), and other steel producers to grab up their share of pent-up demand.

During the financial crisis, U.S. Steel and most of its peers teetered on the brink of disaster, as the global economy contracted abruptly and brought infrastructure and construction activity to a near standstill. The economic recovery over the past five years has provided a lifeline to steel producers worldwide, but it hasn't solved all of their problems. How can U.S. Steel address challenging conditions and thrive? Let's take an early look at what's been happening with U.S. Steel over the past quarter and what we're likely to see in its report.


Source: U.S. Steel.

Stats on U.S. Steel

Analyst EPS Estimate

($0.25)

Year-Ago EPS

($0.41)

Revenue Estimate

$4.36 billion

Change From Year-Ago Revenue

(2.9%)

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance.

What's next for U.S. Steel earnings?
Analysts have had mixed views on U.S. Steel earnings in recent months. They've widened their loss projections for the fourth quarter, but they've raised their full-year 2014 earnings estimates by a whopping 75%, pointing to a much rosier year ahead. The stock has responded favorably to that news, rising 10% since mid-October.

U.S. Steel's third-quarter-earnings report showed investors what they hope is light at the end of the tunnel. Even though the company posted another loss, U.S. Steel's realized prices for flat-rolled and tubular steel posted modest gains of 3.7% and 2.2% respectively. That helped offset an almost 10% drop in steel shipments and kept sequential revenue declines down to 6.7%. Moreover, investors seemed to cheer the company's cost-cutting measures, which include permanently closing its Hamilton Works plant in Ontario and production cuts at its Gary facility.

U.S. Steel has benefited in part from the pain that raw-materials producers have suffered. Rock-bottom prices for iron ore and metallurgical coal have made steel production a lot cheaper than it would otherwise be, supporting margins even in a weak-demand environment for steel products. In addition, demand from the rapidly expanding energy industry could help pricing further in the tubular steel market. Yet some question whether the share-price gains that U.S. Steel has seen lately already fully incorporate those tailwinds, leaving the stock without room to run higher even if the company's efforts prove successful.

Moreover, despite share-price advances, U.S. Steel still faces huge competitive pressures. ArcelorMittal has done a better job than domestic steel producers like U.S. Steel and Nucor in showing improving earnings and production growth, even as Nucor warned that fourth-quarter earnings could decline from year-ago levels because of outages and other factors. Growth in either its flat-rolled or tubular segments would be a victory for U.S. Steel, but few investors expect that to happen.

Another long-term challenge that U.S. Steel is meeting head-on is the environmental impact of steel production. Many efficiency advocates have noted that even though wind-turbine energy is environmentally friendly, the production of the steel necessary to build wind turbines has historically produced large amounts of greenhouse gases. Nucor's recycled steel approach has led to lower carbon emissions than new steel production, but U.S. Steel has also looked at efforts like cutting overall energy use, using more efficient fleet vehicles, and adding alternative-energy production methods to supply its plants with the electricity they need.

In the U.S. Steel earnings report, watch to see whether the company is able to deliver further cost reductions while pointing to a potential recovery in industry demand. In the long run, U.S. Steel needs to demonstrate its ability to capitalize better than Nucor, ArcelorMittal, and its other competitors from any rise in steel demand that supports the broader industry.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.