What happened

Expectations from United States Steel (NYSE:X) leaped after steel giant Nucor (NYSE:NUE) reported a whopping fourfold year-over-year jump in its first-quarter earnings per share on April 20, delivering its best quarter in nearly eight years. U.S. Steel shares were holding up firm through the month, and investors were hoping a Nucor rerun -- or anything close to it -- would send U.S. Steel shares soaring. Instead, U.S. Steel delivered a shockingly dismal set of numbers on April 26, and the market sent the stock plummeting 27% in a day. By the end of the month, U.S. Steel had lost 34% of its value.

So what

Unlike Nucor which leveraged an improved steel price environment to boost production, lower costs, and unlock value from investments made during the downturn, U.S. Steel is stuck in a rut with high production costs as it strives to upgrade its facilities and improve efficiency. Its selling, general, and administrative expenses, for instance, nearly doubled sequentially in Q1. That explains why U.S. Steel ended the quarter with losses worth $180 million, or $1.03 per share despite 16% growth in revenue.

A bridge.

Image source: Getty Images

Blame management for U.S. Steel's woes. While Nucor turned the downturn into an opportunity by acquiring businesses and keeping its existing facilities in shape, U.S. Steel is upgrading its core facilities and fixing up inefficiencies now, at a time when it should be improving operating rates.

Steel prices have bounced back sharply in recent months in anticipation of higher infrastructure spending under Donald Trump's presidency; and the government's recent moves to clamp down on steel imports that violate anti-dumping regulations have buoyed manufacturers' enthusiasm further. It is sad, then, that U.S. Steel is not in a position yet to make the most of an upturn in the steel market. Management's assertion that it expects the entire process of "asset revitalization" to take three to four years and cost more than $1 billion was enough to spook investors into dumping the stock.

Now what

There's little hope for U.S. Steel this year, what with management slashing 2017 profit guidance by more than 50% to $260 million. Worse yet, there's no clarity about how efficient the company's asset revamp efforts will be, nor, more importantly, about when will they show up on its bottom line. Even if U.S. Steel can outperform expectations, it'll likely lag more cost-efficient steelmakers like Nucor. In short, investors can find better ways to bet on steel today.

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.