Now that Christmas is out of the way, it's time for that other "most wonderful time of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up is U.S. Steel (NYSE: X ) , which reports on Tuesday.
What analysts say:
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Buy, sell, or waffle? Seventeen analysts follow U.S. Steel, giving the stock seven buy ratings, six holds, and four sells.
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Revenues. On average, they're looking for 7% sales growth tomorrow, to $3.73 billion ...
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Earnings. ... and a near doubling of profit to $2.21 per share.
What management says:
Late last month, U.S. Steel issued a pair of press releases, announcing that it has paid off more than $300 million in long-term debt ahead of schedule and that it will record approximately $32 million worth of charges to earnings this quarter in connection with those payments. This may mean that the "strong operating performance and favorable steel market conditions" that CEO John Surma said contributed to last quarter's success have continued in Q4.
That would be very good news indeed. Three months ago, previewing Q4's news, Surma had warned that "overall operating results are expected to decline from the third quarter [partly because of the] recent weakening in the U.S. economy coupled with high imports and customer inventory levels." He was expecting sequentially lower average selling prices, and fewer tons of steel shipped as well -- plus higher costs resulting from cutbacks in production to deal with the inventory glut.
What management does:
For the past two quarters, rolling
margin results have climbed at each of the gross, operating, and
net levels. However, if Surma correctly called the trends three months ago, you should expect each of these numbers to drop when Tuesday's news comes out.
|
Margins
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6/05
|
9/05
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12/05
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3/06
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6/06
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9/06
|
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Gross
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21.0%
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19.1%
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17.4%
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15.6%
|
15.8%
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17.8%
|
|
Operating
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14.6%
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12.4%
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10.3%
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8.4%
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8.7%
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11.1%
|
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Net
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10.5%
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9.1%
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6.5%
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5.1%
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5.9%
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7.7%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.One Fool says:
Fortunately for U.S. Steel, it has built up a comfy cushion to absorb any drop in margins going forward. Thanks to strong steel pricing and declining costs of raw materials, the company has grown its sales 21% year over year in the last six months, while the cost of goods sold has risen only 15%. Meanwhile, the firm has been cutting its operating costs, driving selling, general, and administrative expenses, for example, down 7% within the same period.
On the balance sheet, things look just as good. Accounts receivable and inventories are both growing more slowly than sales, up 20% and 15% respectively over the last six months. Thanks largely to this, operating cash flow has exploded, rising 37% year over year in the period. Combined with lower capital expenditures in recent quarters, this has given U.S. Steel plenty of free cash flow with which to pay down its debt.
Competitors:
- Ipsco (NYSE: IPS )
- Mittal (NYSE: MT )
- Nucor (NYSE: NUE )
- Steel Dynamics (Nasdaq: STLD )
- Tenaris SA (NYSE: TS )
- Wheeling-Pittsburgh (Nasdaq: WPSC )
Have U.S. Steel's peers fared as well as the giant of the industry? Find out in:
Fool contributor Rich Smith does not own shares of any company named above. Mittal is a former Inside Value recommendation. The Fool's disclosure policy is tempered for durability.
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