U.S. Steel shares jump on announcement of $75 million in savings

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Shares of U.S. Steel jumped Tuesday after new President and CEO Mario Longhi outlined plans for generating annual savings of more than $75 million, measures that he said are first small steps of an exhaustive, disciplined effort to boost efficiency and reduce costs.

The actions include ending steel production at its Hamilton, Ontario, mill at the end of this year; shuttering two 1954 vintage coke batteries at its Gary, Ind., mill; dissolving a steel galvanizing joint venture; and not renewing iron ore contracts.

Mr. Longhi announced the measures during a conference call with analysts to discuss the company's third quarter results, a loss of $1.79 billion, or $12.38 per share. Sales fell 11 percent to $4.13 billion.

Excluding a $1.8 billion noncash charge to write down the value of its Canadian and Texas operations, the loss of 14 cents per share was much smaller than what analysts had expected.

"We have not created economic profits for our shareholders for five years. You're not happy and we're not happy. That's not acceptable," David Burritt, the steelmaker's new CFO, told analysts.

U.S. Steel shares, which had been trading at about $23 when the 3 p.m. conference call began, soared during the call and finished the day at $25.47, up $2.05, or nearly 9 percent. The stock, which last traded at those levels at the beginning of the year, has jumped 42 percent since Mr. Longhi took over Sept. 1.

Several analysts applauded the actions, with one of them telling Mr. Longhi, "It's what we've been wanting to hear." The initiative, dubbed Project Carnegie, was announced in late April and investors have been pressing the company for specifics since then.

Mr. Longhi told analysts the measures "are just the beginning" of the efficiency initiative. "This is a journey and we just began it," he said.

The company will take a fourth quarter noncash charge of about $225 million based on the decision to stop making steel at Hamilton, Mr. Longhi said. The plant can make about 2 million tons of steel annually. Shutting it will generate annual savings of about $50 million and avoid $25 million in cash the company has to spend to operate the equipment, he said.

U.S. Steel, which has not posted a profitable year since 2008, said operating income for the fourth quarter will be below the $113 million reported in the third quarter. That performance benefitted from a stronger performance from the company's North American sheet mills despite a blast furnace outage at its Great Lakes Works near Detroit and a lockout at its Nanticoke, Ontario, mill.

Results for the current quarter will include about a $60 million increase in maintenance costs, which includes blast furnace projects at Gary and the company's Fairfield, Ala., plant. Analysts have speculated the Fairfield furnace could be idled as part of Project Carnegie, something that the company has considered doing for some time.

Mr. Longhi said the Alabama furnace is expected to last several more years.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941. First Published October 29, 2013 5:13 PM

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