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U.S. Steel's Revenue Drops 8.8% In 2019; However, The Worst Is Yet To Come

2020-02-10

U.S. Steel Corp (NYSE: X), one of the largest steel companies in the US, saw its revenue base erode by almost $1.3 billion in 2019. Total revenues declined by 8.8%, from $14.2 billion in 2018 to $12.9 billion in 2019. This decline was driven by a drop in shipments as well as lower price realization. The biggest drag on the top line has been the European division, which saw a whopping 25% decline in revenues, followed by US Flat-Rolled and Tubular divisions which declined ~3.5%. However, the biggest near-term worry for investors is that the worst seems to be far from over. With the steel market still going through a downturn, Trefis estimates that US Steel's revenues could decline at a faster rate of over 10% in 2020, to reach about $11.6 billion, with any marginal recovery to happen only in 2021.

You can view the Trefis interactive dashboard – U.S. Steel Revenues: How Does U.S. Steel Make Money? – to understand how each operating division has performed in 2019 and the segment-wise outlook for 2020 and 2021. You can also alter the key assumptions to arrive at your own revenue estimate for the company.

Company Overview

What Does It Offer?

US Steel is a large steel company with the following operating segments:

US Flat-Rolled: This refers to the steel sheets and plates that are made by rolling processes.

US Tubular: This refers to the steel pipes made using flat-rolled steel.

European Tubular and Flat-Rolled: This includes steel sheets and plates as well as tubular items like pipes that are made by rolling processes and are sold in the European markets.

Other Businesses: This includes transportation services (railroad and barge operations) and real estate operations.

US and European Flat-Rolled operations sell to customers in the service center, conversion, transportation (including automotive), construction, container, and appliance and electrical markets.

The Tubular division primarily serves customers in the oil, gas, and petrochemical markets.Competition?

US Steel faces intense competition from global peers such as: A.K. Steel Holding Corporation, Nucor, and ArcelorMittal.

Total Revenue Trend

Total revenue is expected to decline by 8.8% from $14.2 billion in 2018 to $12.9 billion in 2019 on the back of loss of volume from ongoing repair works at Great Lakes Works facility and under-performance of the European segment.

This was exacerbated by an unfavorable pricing environment on the back of the US-China trade war.

Total revenue is likely to drop by over 10% in 2020 to $11.6 billion, with a marginal recovery in 2021.

Drop in 2020 is to be driven by continuing pressure on prices and lower shipments due to production shutdowns.

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Segment-Wise Revenue Performance

A] US Flat-Rolled

US Flat-Rolled segment has added $1.4 billion in revenues in 2018, led by sharp increase in steel prices.

However, segment revenue declined in 2019 driven by lower shipments and drop in price realization.

Revenue decreased by $0.3 billion to come in at $9.6 billion in 2019.

Decrease in shipments reflected loss of volume from ongoing repair work at Great Lakes Works facility, along with lower demand from automobile sector, exacerbated by the General Motors strike.

Price realization declined from $943 per ton in 2018 to $894 per ton in 2019, mainly due to US-China trade war and lower demand.

Shipments are expected to remain low in 2020 due to production outage at Gary Works, while subdued pricing is set to lead to 10% drop in US Flat-Rolled revenues

B] US Tubular

US Tubular segment had added $0.3 billion to its revenue base in 2018.

However, revenues saw marginal decrease from $1,236 million in 2018 to $1,191 million in 2019, driven by lower volume and prices.

Lower shipments were primarily driven by lower demand from the oil and gas sector.

Revenue is expected to marginally recover to $1,216 million in 2020, driven by increased shipments as a result of improved market conditions and drilling activity, partially offset by a subdued pricing environment.

C] European Tubular & Flat-Rolled

The segment has added close to $0.2 billion in revenue in 2018.

Source: Forbes