Shares of United States Steel (X 0.90%) dropped 8% on Friday morning after the steelmaking giant cut guidance and lowered its dividend. The company promised "swift action" in response to difficult market conditions, but there is no easy fix.
U.S. Steel said it expects a fourth-quarter loss of about $1.15 per share, well below the consensus expectation for a $0.59-per-share loss, due in part to restructuring efforts. The company said that while it sees signs of a recovery in the North American steel market, Europe remains weak, as does the tubular segment.
For the year, the company now expects a loss of $0.42 per share, compared to expectations for a $0.04 profit. U.S. Steel also cut its quarterly dividend to $0.01 per share from $0.05 per share, making it less attractive to income-focused investors. The cut, coupled with a $75 million decrease in planned capital spending for 2020, should preserve about $100 million of cash next year.
The company is also indefinitely idling its Great Lakes Works plant.
"While the current realities of the markets we serve are having a significant impact on our short-term results, we are taking swift action to align our operational footprint and financial strategy with our customers' future to ensure we continue executing our 'best of both' integrated and mini-mill technology strategy," CEO David B. Burritt said in a statement. "Fourth quarter expected results confirm the need to change to make the business more resistant to factors outside of our control. While the decisions being made are difficult, we believe they allow us to drive increased stockholder value as we move toward our future faster with a more capital efficient footprint."
U.S. Steel appears to be making the right moves, but there is only so much that can be done with so many key markets under pressure. The company said that average realized prices in Europe have declined, and it expects difficult market conditions to continue into the new year. In tubular steel, selling prices continue to decline, and substrate costs improved less than expected due to higher scrap costs.
External factors are likely to continue to pressure margins well into 2020. With the dividend cut, shareholders have one less reason to ride out the cycle with U.S. Steel.