U.S. Steel profit down 25 pct

U.S. Steel profit down 25 pct

	Published : Wed, 25 Jul 2007 00:50 By : Agencies Print this Story

PITTSBURGH (AP) - United States Steel Corp. reported a 25 percent decline in second-quarter earnings Tuesday as lower sales of flat-rolled and tubular steel cut into profits. But the results still beat Wall Street expectations.

The Pittsburgh-based company said net income for the three months ended June 30 fell to $302 million, or $2.54 per share, from $404 million, or $3.22 per share, during the same period last year. Sales grew to $4.2 billion, up from $4.1 billion last year.

The results included a charge related to the early redemption of debt that reduced net income by $14 million, or 12 cents per share.

Analysts polled by Thomson Financial were looking for earnings of $2.35 per share on $4.05 billion in sales. Shares of U.S. Steel rose 42 cents to $106.41.

Operating income for the company's flat-rolled segment plunged to $92 million from $212 million a year ago, while tubular income dropped to $97 million from $146 million. Results in Europe jumped nearly 30 percent, to $244 million.

During the quarter, U.S. Steel completed a $2 billion acquisition of Texas-based Lone Star Technologies Inc., which makes welded pipe used in oil fields. Lone Star folded into U.S. Steel's tubular business in June, adding 47,000 tons to shipments.

U.S. Steel, the largest U.S.-based steel producer, also repurchased 304,900 shares for $33 million.

John P. Surma, U.S. Steel's chairman and chief executive, said the company expects stronger results in the third quarter, excluding charges related to the Lone Star acquisition.

The company's flat-rolled results are expected to improve mainly due to lower facility outage costs and higher shipments, though they will be offset by slightly lower prices.

In Europe, U.S. Steel's earnings will likely decrease because of higher spending on outages, including the relining of a blast furnace in Serbia, which is scheduled to begin in September.

Tubular prices are projected to decrease from second-quarter levels and results may be hurt by Lone Star's excess inventory.

KeyBanc Capital Markets analyst Mark Parr said U.S. Steel's second quarter was better than expected, mostly due to better European performance as well as the company's supply discipline and ability to maintain price momentum.

He noted that U.S. Steel was expecting stronger results in the second half of the year -- despite a seasonal slowdown -- based on greater demand, automotive production and 'hopefully some improving mix in the European business.'

Charles Bradford, an analyst with Bradford Research/Soliel Securities, said the big question was whether there would be a strike by union workers in the auto industry. 'That's a good bit of their business,' he said.

United Auto Workers negotiators recently began formal contract talks with Ford Motor Co., General Motors Corp. and Chrysler Group. National contracts with all three expire on Sept. 14.

Citigroup analyst John H. Hill said in a recent client note that steel prices were falling after a demand boost earlier this year, with prices for sheet steel -- used in the struggling automotive and housing industries -- the weakest.

Some construction-grade steel is doing a little better due to commercial and infrastructure building, he added.

CIBC World Markets Corp. analyst Michael Willemse wrote that U.S. Steel faced higher costs for raw material, energy and other items, and that its exposure to the North American construction market could also weigh on results.

U.S. Steel was surrounded by speculation during the quarter that German steel maker ThyssenKrupp AG was interested in buying the company. But ThyssenKrupp denied that it was in talks to buy U.S. Steel.

The Allegheny County Health Department, meanwhile, ordered U.S. Steel in June to pay nearly $400,000 in fines and make $76 million in repairs to address air pollution at its Clairton Coke Works in Pennsylvania, the largest coke plant in the United States. Coke, which is made by baking coal in large brick ovens for hours to remove impurities, is a fuel used in the manufacture of steel.

For the first six months of the year, U.S. Steel earned $575 million, compared with $660 million during the first half of 2006. Sales were nearly $8 billion, up from about $7.8 billion last year.

U.S. Steel shares rose 42 cents and closed at $106.41.