In a big surprise, United States Steel Corporation (NYSE:X) delivered its best month so far this year in August, as shares surged 17.1% despite lack of any big news from the steelmaker's side. Two factors appear to have driven the shares higher: a spillover of U.S. Steel's strong second-quarter numbers that came out at the end of July, and Hurricane Harvey.
As has historically been the case, U.S. Steel's earnings can fluctuate wildly from quarter to quarter. So after an abysmal set of first-quarter numbers in April that sent the stock plummeting double digits, U.S. Steel bounced back late in July with a sharp jump in profits for its second quarter. It reported 22% higher revenue and earnings per share of $1.48 versus a loss of $0.32 per share in the year-ago quarter.
While a one-time gain from the sale of U.S. Steel Canada lifted the company's profits, its adjusted earnings per share (EPS) were still substantially higher versus last year, thanks to improving volumes and prices.
It was also U.S. Steel's first quarterly release under CEO David Burritt, who recently took over from Mario Longhi. Not surprisingly, investors connected the steelmaker's strong quarterly performance with Burritt's entrance and bid the shares up in anticipation of better days ahead. The euphoria spilled over to August, and it was more a reflection of typical investor psychology: A stock that's been under considerable pressure needs only one trigger to drive the share price up. U.S. Steel's strong Q2 numbers were a big trigger, for that matter.
As August wrapped up, Hurricane Harvey lifted U.S. Steel stock further. As nearly one-third of total steel imports in the U.S. land at Houston, the hurricane could prove a setback for imports, thus lifting steel prices and the prospects for domestic companies like U.S. Steel.
The biggest takeaway from U.S. Steels' earnings report was management upgrading its full-year earnings outlook to $300 million from $260 million, backed by improving conditions, particularly in the company's flat-rolled segment and Europe. While that's encouraging, relying on steel prices isn't enough to sustain momentum as U.S. Steel continues to face the humongous challenge of fixing operational inefficiencies and upgrading its core facilities on time to ride an upturn.
It'll come at a cost, too, which means the steelmaker will have to grow its earnings at a much faster clip to be able to compete with rivals that are already positioned for growth. As an investor, I'd prefer staying on the sidelines until U.S. Steel's efforts start showing up in its numbers than bet my money on one strong quarter.