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US Steel's Stock Jumps 10% After Company Reports a Less-Than-Expected Loss, Ups Guidance

By Tyler Crowe - Jul 27, 2016 at 11:39AM

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Higher prices were the salve that U.S. Steel's income desperately needed, and this quarter the company started to show signs of life again.

Image source: Getty Images.

What: Shares of steelmaker U.S. Steel ( X 0.18% ) are up 10.8% as of 10:45 a.m. EDT after the company reported a net income loss that was much smaller than analysts expected for the quarter. 

So what: U.S. Steel posted a loss of $0.32 per share on a GAAP basis. While that doesn't sound great on the surface, it was much better than the $0.46 per-share loss that analysts were expecting. U.S. Steel attributed its improved results to better pricing on flat rolled steel, as well as to gains in its European segment. 

To add to the good news, U.S. Steel updated its guidance and said that it expects to generate $0.34 per share on EBITDA of $850 million. The big change in guidance was mostly attributed to the gains in prices that the company foresees holding up at least a little while as import tariffs lift domestic steel prices. 

Now what: Higher prices is just what the doctor ordered for U.S. Steel and its domestic steelmaking peers. For a few years now, cheap imports have been undercutting the company's ability to generate any form of profit. What is more important, though, is that U.S. Steel continues to cut costs. It made some progress this quarter, but it still has a way to go before its cost structure is low enough to ensure sustainable profits. Until the company can prove that it is capable of generating consistent profits with more modest steel prices, it's probably best to sit this one out and wait to see how the company does. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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