UPDATE 5-U.S. Steel profit beats Street view, stock soars

Tue Jul 31, 2012 5:45pm EDT

* Q2 adj profit 69 cents/share vs Wall St view 47c/share

* Warns Q3 earnings below Q2 levels

* CEO says starting to see steel prices moving up

* Stock jumps 9 percent

By Steve James

July 31 (Reuters) - U.S. Steel Corp's second-quarter profit beat Wall Street's expectations, sending its stock soaring, but the steelmaker also warned on Tuesday that third-quarter results would drop off because of global economic weakness and lower prices.

U.S. Steel's stock rose 9.1 percent to close at $20.65 on the New York Stock Exchange.

"We expect ... operating results to be positive in the third quarter but below our second-quarter results, reflecting the continued weakness in the North American, European and emerging market economies," Chief Executive Officer John Surma said in a statement.

He said average realized steel prices are expected to be lower in all three of U.S. Steel's businesses -- flat-rolled, European and tubular.

But later, he gave Wall Street analysts a positive message, saying flat-rolled steel and European prices were starting to move up again, even if they were still lower than a year ago.

"We see the market moving up in front of us," Surma said on a conference call. "It's still early in the process (and) we like to discuss things with the customers before we talk about it too much here, but the direction is pretty clear. It's up."

He said U.S. Steel was already booking orders into September, but he remained concerned about cheap foreign imports affecting domestic pricing.

"(But) The weaker euro (vs the U.S. dollar) should continue to discourage imports in the near-term," Surma said.

The U.S. Steel chief said the global economic recovery continues to be slow but there were some bright spots, such as the automotive segment, which he said is operating at levels well above last year.

Analyst David Gagliano of Barclays Capital Inc was bullish, saying he was not surprised that U.S. Steel expects third-quarter results to be weaker than the second quarter due to continued weakness in North America, Europe and emerging markets.

"The combination of another call for a trough in spot steel prices, resilient tubular segment expectations for the third quarter, the better-than-expected second-quarter results, and recent indications of recovering scrap steel prices, each bodes well for a near-term recovery in U.S. Steel shares," he said.

RIVALS STRUGGLE

U.S. Steel's earnings follow a string of poor second-quarter results from U.S. steelmakers struggling with weak demand. Nucor's profit fell almost two-thirds and it forecast a drop in third-quarter earnings because increasing imports of cheaper foreign steel are pressuring already weak prices.

Steel Dynamics reported a drop of more than 50 percent in profit and AK Steel posted a second-quarter loss as sales fell 14 percent.

U.S. Steel said its second-quarter net profit dropped more than 50 percent to $101 million, or 62 cents per share, from $222 million, or $1.33 per share, a year earlier.

Excluding an $11 million after-tax early redemption premium on $300 million in senior notes due in 2013, earnings were 69 cents per share. On that basis, they beat analysts' estimates of 47 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell slightly to $5.0 billion from $5.1 billion, buoyed by a boom in the North American oil and gas industry.

The Pittsburgh-based company said total steel shipments declined in the second quarter to 5.43 million tons, from 5.5 million tons a year earlier, with prices falling in both the flat-rolled and European segments.

But revenue was boosted by higher prices for tubular steel, which is used for pipes in the oil and gas industry. However, the company noted that tubular shipments of 493,000 tons were 7 percent lower than in the first quarter.

"The results were better than many people expected but should have been better, given their favorable raw material position," said analyst Charles Bradford, of Bradford Research in New York.

He noted U.S. Steel has mines in Minnesota to produce its own iron ore, a key ingredient in steelmaking. "Despite having a substantial raw material cost advantage, U.S. Steel may lose money in its third quarter if its flat rolled segment breaks even, as they forecast," he said, citing substantial pension costs and interest expense.

The company said it expected break-even results for its flat-rolled segment in the third quarter due to lower average realized prices.

It forecast Slovakia-based European segment results to remain positive but lower than the second quarter, reflecting the continued economic challenges in that market.

For its tubular business, U.S. Steel forecast third-quarter results in line with the second quarter, with shipments expected to be lower as end-users adjust their drilling schedules.