U.S. Steel Announces Q4 Expectations; Shares Drop on Order Concerns

United States Steel Corporation (NYSE: X) has provided adjusted EBITDA guidance of about $1.65 billion for the fourth quarter of 2021. Though the guidance indicates another quarter of strong performance, management has warned of a temporary slowdown in orders.

Following the news, shares of the American integrated steel producer dropped 5.1% in the extended trading session on Thursday.

Q4 Expectations

U.S. Steel expects its Flat-rolled segment to deliver adjusted EBITDA of around $1 billion with margins near prior-quarter levels. Results are expected to be driven by elevated flow-through of higher steel selling prices, partly mitigated by cautious seasonal buying and a rise in raw material and energy costs.

Despite lower volumes in the fourth quarter, the Mini Mill segment is expected to record EBITDA margins similar to the third quarter’s record performance. Notably, cautious seasonal buying, partly offset by reduced metallics usage, led to lower volumes in the quarter.

Additionally, the European segment is forecast to deliver a reduction in EBITDA on a sequential basis. Lower steel prices, the impact of the unfavorable foreign exchange rates, and elevated planned outages and energy costs contributed to the downside. These negatives were partially offset by lower iron ore costs.

However, the company projects the Tubular segment to record an improvement in EBITDA compared with the third quarter. Higher steel selling prices are projected to be mostly offset by elevated scrap costs. Markedly, the Tubular segment is expected to perform well in 2022.

Capital Deployment

In the fourth quarter so far, the company has repurchased around $100 million of common stock. As of December 16, 2021, the company has approximately $200 million remaining under the existing repurchase program of $300 million.

Deleveraging Update

U.S. Steel has completed more than $400 million of deleveraging as part of its fourth-quarter target. Furthermore, the company expects to have approximately $3.9 billion of debt at the end of the year, with 80% of its remaining debt due in 2029 and beyond.

CEO Comments

U.S. Steel CEO David B. Burritt said, “We are ending 2021 from a position of strength and expect continued strong performance in 2022 and beyond. This year, we’ve transformed the balance sheet, enhanced direct returns to stockholders, and are on a path to get to our Best for All℠ future faster. Next year, our fixed price contracts are resetting significantly higher, providing better earnings stability compared with competitors with more spot exposure. Additionally, incremental demand drivers are materializing, and we believe the steel industry super cycle will continue.”

“Our fourth quarter guidance indicates another quarter of strong performance yet reflects a temporary slowdown in order entry activity, which we believe is related to typical seasonal year-end buying activity,” Burritt added.

He further commented, “We are bullish for next year and remain agile to ensure we continue to meet our customers’ needs as we enter the new year. 2022 should be another great year for U. S. Steel with robust free cash flow, continued ample liquidity to fund strategic investments, and additional opportunities to enhance our capital allocation priorities.”

U.S. Steel’s upcoming earnings report for the fourth quarter of 2021 is expected to be released in the first week of February 2022.

Wall Street’s Take

Last month, Wolfe Research analyst Timna Tanners initiated coverage of the stock with a Hold rating and a price target of $27 (15.14% upside potential).

Tanners remains cautious on steel prices and the “looming regional oversupply.”

Overall, the stock has a Hold consensus rating based on 3 Buys, 3 Holds, and 2 Sells. The average United States Steel price target of $30.75 implies 31.13% upside potential to current levels. Shares have gained 26.4% over the past year.

Smart Score

According to TipRanks’ Smart Score system, United States Steel gets a 6 out of 10, which indicates that the stock is likely to perform in line with market averages.