U.S. Steel Swings to Profit, Warns of Weak 4Q

United States Steel (NYSE:X) swung to a profit in the third quarter from a year-ago loss and trumped Wall Street expectations, however the company warned its earnings will likely weaken in the current period.

The third-quarter profit was fueled by a sharp gain in flat-rolled operations, which saw income climb to $203 million from a loss in 2010 of $161 million. A slight increase in its tubular group, as a result of higher shipments and prices, helped to offset a decline in its Europe segment.

However, the company's chief executive, John Surma, warned that its flat-rolled results will likely reflect an operating loss in the fourth quarter. Average realized prices and shipments are expected to decline as a result of cautious purchasing patterns created by an uncertain economic outlook and increase domestic supply.

The market factors are slated to bring U.S. Steel’s operating results for the current quarter down to around break-even level prior to the effects of increased maintenance outages and facility restart costs, as well as a $30 million charge related to the ratification of a new three-year labor agreement at Hamilton Works.

The company also forecasts that there will be continued weaknesses in its European segment, as well as a further decline in shipments and average prices.

Offsetting some of the predicted declines, however, U.S. Steel said it believes operating costs will be down from the quarter-earlier as a result of lower spending and raw material costs, and that its tubular segment will continue to be in line with its strong third-quarter performance.

The Pittsburgh-based steel maker posted third-quarter net income of $22 million, or 15 cents a share, compared with a year-earlier loss of $51 million, or 35 cents, in the same quarter last year.

Last year’s woes were the result of a foreign currency loss and an accounting re-measurement of a $1.6 billion intercompany loan to a European subsidiary.

Excluding one-time items, the company said it earned $118 million, or 72 cents a share, ahead of average analyst estimates polled by Thomson Reuters of 52 cents.

Net sales for the three-month period was $5.08 billion, up from $4.5 billion a year ago, just head of the Street’s view of $5.05 billion.