United States Steel Corporation · NYSE:X
United States Steel — FY2017 Earnings Presentation
64 slides from United States Steel's earnings presentation, Feb 1, 2018
Slide 1: 4Q and Full Year 2017 Earnings Presentation & Remarks
United States Steel Corporation United States Steel Corporation 4Q and Full Year 2017 Earnings Presentation & Remarks January 31, 2018
Slide 2: Slide 2
Slide 3: Forward-looking Statements
United States Steel Corporation Forward-looking Statements These slides and remarks are being provided to assist readers in understanding the results of operations, financial condition and cash flows of United States Steel Corporation for the fourth quarter and full year of 2017. They should be read
Slide 4: Explanation of Use of Non-GAAP Measures
United States Steel Corporation Explanation of Use of Non-GAAP Measures We present adjusted net earnings (loss), adjusted net earnings (loss) per diluted share, earnings (loss) before interest, income taxes, depreciation and amortization (EBITDA), adjusted EBITDA, segment EBITDA, and net debt, which
Slide 5: 4Q and Full Year Financial Highlights
United States Steel Corporation 4Q and Full Year Financial Highlights Full year net earnings of $387 million EBITDA increased for all three reportable segments in 2017 as compared with 2016 Full year EBITDA of $1.109 billion; Adjusted full year EBITDA of $1.087 billion 4Q EBITDA of $273 mill
Slide 6: Three solid quarters to finish the year
We finished the year with three solid quarters as investments in our assets helped to provide more stable operating performance, and results for all three of our reportable segments were in line with our expectations. Three relatively stable quarters is a good start for us, but we cannot be satisfie
Slide 7: Fourth Quarter and Full Year 2017 Results
United States Steel Corporation Fourth Quarter and Full Year 2017 Results Establishing positive momentum heading into 2018 Segment Earnings (Loss) Before Interest and Income Taxes $ Millions Adjusted EBITDA $ Millions Adjusted Net Earnings (Loss) $ Millions $341 ($250) $136 $47 4Q 2017 4Q 2016 FY 20
Slide 8: Strategic priorities and full year results commentary
Excluding the favorable impact related to our previously disclosed change in accounting method for property, plant, and equipment, our full year results for 2017 improved compared to 2016, with all three of our reportable segments improving. We are focused on our strategic priorities: driving operat
Slide 9: Flat-Rolled Segment
United States Steel Corporation Flat-Rolled Segment Flat-Rolled EBITDA $ Millions $732 $147 FY 2016 $346 4Q 2017 $181 4Q 2016 +112% +23% FY 2017 Flat-Rolled EBITDA Bridge 4Q 2016 vs. 4Q 2017 ($ Millions) Flat-Rolled EBITDA Bridge FY 2016 vs. FY 2017 ($ Millions) $1 2 $24 $181 $147 4Q 2017 Other Main
Slide 10: Flat-Rolled segment results commentary
Results for our Flat-Rolled segment improved for the fourth quarter and full year 2017 compared with the same periods in 2016 primarily due to higher average realized selling prices and increased third party pellet sales, partially offset by higher raw material costs and increased maintenance and ou
Slide 11: U. S. Steel Europe Segment
United States Steel Corporation U. S. Steel Europe Segment U. S. Steel Europe EBITDA $ Millions $403 $83 +52% +59% FY 2017 FY 2016 $265 4Q 2017 $132 4Q 2016 U. S. Steel Europe EBITDA Bridge 4Q 2016 vs. 4Q 2017 ($ Millions) U. S. Steel Europe EBITDA Bridge FY 2016 vs. FY 2017 ($ Millions) $127 $132 $
Slide 12: European segment results commentary
Results for our European segment improved for the fourth quarter and full year 2017 compared with the same periods in 2016 primarily due to higher average realized euro-based prices, partially offset by higher raw material costs, particularly for coal and iron ore. 4Q 2016 vs. 4Q 2017 EBITDA Bridge:
Slide 13: Tubular Segment
United States Steel Corporation Tubular Segment Tubular EBITDA $ Millions ($48) ($70) $6 4Q 2016 FY 2016 ($236) 4Q 2017 +80% +109% FY 2017 Tubular EBITDA Bridge 4Q 2016 vs. 4Q 2017 ($ Millions) Tubular EBITDA Bridge FY 2016 vs. FY 2017 ($ Millions) $6 ($70) Other $32 Maintenance & Outage $11 Raw Mat
Slide 14: Tubular segment results commentary
Fourth quarter results for our Tubular segment improved compared with the fourth quarter of 2016 primarily due to higher average realized selling prices, higher volumes, and an unfavorable lower of cost or market (LCM) adjustment for obsolete inventory related to the prolonged downturn in the energy
Slide 15: 2018 Full Year Outlook
United States Steel Corporation 2018 Full Year Outlook 2018 Full Year Outlook If market conditions remain at their current levels, we expect: Net Earnings ~ $685 million Net Earnings per Diluted Share ~ $3.88 Consolidated EBITDA ~ $1.5 billion 2018 Full Year EBITDA Outlook by Segment If market condi
Slide 16: 2018 focus and outlook assumptions
Our focus in 2018 remains on continuing to improve the fundamentals of our business: safety, quality, delivery, and cost, and we expect the performance momentum from 2017 to continue. If market conditions remain at their January 24, 2018 levels, we expect consolidated EBITDA of approximately $1.5 bi
Slide 17: Reducing Risk
United States Steel Corporation Reducing Risk Proactive efforts to reduce risk • Strengthening our cash and liquidity position • Improving our debt maturity profile • Exposure to defined benefit pension plans decreasing • Minimizing market risk related to OPEB funding
Slide 18: Actions to improve risk profile
We took significant actions in 2017 to improve the risk profile of our company, and we continued to proactively manage our exposure to our legacy obligations.
Slide 19: Financial Flexibility: cash and liquidity
United States Steel Corporation Financial Flexibility Strong cash and liquidity positions Cash from Operations $ Millions Total Estimated Liquidity $ Millions Cash and Cash Equivalents $ Millions $802 $731 $360 YE 2017 YE 2016 YE 2015 +$442 Net Debt $ Millions $1,553 $1,515 $755 YE 2017 YE 2016 YE 2
Slide 20: Cash flow and cash balance commentary
Net cash provided by operating activities was $802 million in 2017 compared to net cash provided by operating activities of $731 million in the same period last year. The increase in 2017 is primarily due to significantly improved financial results, while 2016 had benefits from actions we took to ma
Slide 21: Financial Flexibility: liquidity and debt maturity profile
United States Steel Corporation Financial Flexibility Cleared runway for asset revitalization Liquidity and Debt Maturity Profile Cash and Liquidity $3,350M $1,797 $1,553 $435M 2019 $59M 2018 $3M $22M 2028 $0M 2027 $29M 2026 $108M 2025 $750M 2030+ $444M 2029 2024 $60M 2023 $0M 2022 $10M 2021 $784M 2
Slide 22: Liquidity and debt maturity commentary
Financial Flexibility This chart shows how our liquidity position and debt maturity profile have improved from year-end 2015 to year-end 2017. We accessed the debt and equity capital markets during 2016 and 2017 to enhance liquidity and address near-term financing risks. In May 2016, we issued $980
Slide 23: Pension expense and funded status
United States Steel Corporation Expense and funded status Participants by Type of Plan Type of Plan 12/31/2003 12/31/2016 12/31/2017 Defined Benefit 15,574 4,710 4,220 Multiemployer 6,043 9,730 9,306 Defined Contribution 1,627 3,535 3,651 Total 23,244 17,975 17,177 Pension – Benefit Obligations $ Bi
Slide 24: Pension exposure commentary
Financial Flexibility Our exposure to defined benefit pensions continues to decrease. Our pension benefit obligations have decreased by 46% since 2012, and service costs have decreased by almost 58% since 2012. Over that same period the funded status of our pension benefit obligations has increased
Slide 25: OPEB expense and funded status
United States Steel Corporation OPEB Expense and funded status OPEB – Expense $ Millions OPEB – Benefit Obligations $ Billions OPEB – Service Cost $ Millions OPEB – Underfunded Status $ Billions $17 $20$21 $22 $27$28 2017 2016 2015 2014 2013 2012 $78 -$4 -$40 -$25 $55 $100 $60 2018E 2017 2016 2015 2
Slide 26: OPEB obligations commentary
Financial Flexibility The risks associated with our OPEB obligations have decreased significantly over the last five years. Our OPEB benefit obligations have decreased by almost 40% since 2012, and service costs have decreased by almost 40% since 2012. Over that same period, the funded status of our
Slide 27: 2017 Strategy Execution Progress
United States Steel Corporation 2017 Strategy Execution Progress Strong emphasis on our thirteen most critical assets Operational and commercial benefits by 2020 - Increase raw steel production capability by approximately 1 million tons - $275 - $325 million annual EBITDA improvement by 2020 C
Slide 28: Asset revitalization and portfolio optimization commentary
We made good progress on our asset revitalization program in 2017, achieved the quality and reliability improvements we committed to for 2017, and are confident that we will achieve our 2018 improvement objectives. We are committed to delivering consistent, reliable earnings longer term with our foc
Slide 29: Flat-Rolled asset revitalization program
United States Steel Corporation Focusing on operations Flat-Rolled Segment asset revitalization program A comprehensive program to: • Improve our profitability and competitiveness • Meet the increasing expectations of our customers A structured and flexible program: • Smaller and less complex projec
Slide 30: Asset revitalization program commentary
Our Flat-Rolled segment asset revitalization program is a comprehensive investment plan with a focus on improving safety, quality, delivery, and cost. As we revitalize our assets, we expect to increase profitability, productivity, operational consistency, and reduce volatility. This program is desig
Slide 31: Projected capital spending by production process
United States Steel Corporation Flat-Rolled Segment asset revitalization program Projected capital spending by production process Blast furnace BOP, QBOP & slab caster Hot strip mill Cold mill & finishing unit Steel Making Hot Rolling Finishing Iron Making ▪ Converting raw materials to liquid iron ▪
Slide 32: Capital and expense split of the program
As we assessed future projects in more detail, we determined that more of the projected spending could be capitalized than we originally anticipated. As a result, we now expect capital spending for our asset revitalization program to be approximately $1.5 billion from 2017 through 2020. The total si
Slide 33: Asset revitalization project update
United States Steel Corporation Flat-Rolled Segment asset revitalization program Project update Production Process Completed Project Future Project Iron Making • Gary Works #6 BF Outage • $26 million invested • Completed in 4Q 2017 • Improve reliability • Gary Works BF Recycle Cooling Tower Replacem
Slide 34: Completed project examples
We have completed numerous projects so far this year, started hundreds more, and are in the planning and development stage for additional projects for 2018. A selection of completed projects are below: Iron Making – Gary Works #6 BF Outage • A 45 day outage of the blast furnace was taken to perform
Slide 35: Performance Scorecard: All 2017 Targets Achieved
United States Steel Corporation Flat-Rolled Segment asset revitalization program Performance Scorecard: All 2017 Targets Achieved Quality % Improvement vs. 2016 Base Reliability (including Unplanned Maintenance Downtime) % Improvement vs. 2016 Base Capital Spending $ Millions EBITDA improvement $ Mi
Slide 36: Scorecard metrics and 2020 expectations
We have developed a performance scorecard that includes two financial and two non-financial metrics for tracking our progress on implementing our Flat-Rolled Segment asset revitalization program. We believe these metrics will effectively measure how successfully we are implementing the program. We m
Slide 37: Business Update: Operating updates
United States Steel Corporation Business Update Operating updates Iron ore mining facilities Steel making facilities Flat-Rolled finishing facilities Tubular facilities U. S. Steel Europe
Slide 38: Operating facilities status
At our Flat-Rolled segment iron ore mining operations, we are operating both our Minntac and Keetac facilities. Our Keetac facility successfully resumed pellet production on February 24, 2017 after having been idled for nearly two years. The restart of Keetac helps support our third party pellet sal
Slide 39: Global Safety Performance
United States Steel Corporation Global Safety Performance Program Enhancements – Moving to the Next Level • Benchmarking of critical safety activities • Development of enhanced Safety Management System • Initiation of new safety communication methods • Enhanced contractor safety processes
Slide 40: Safety objectives and recordable rates
Our objective is to attain a sustainable zero harm culture supported by leadership and owned by an engaged and highly skilled workforce, empowered with the capabilities and resources needed to assess, reduce, and eliminate workplace risks and hazards. Global OSHA Recordables • 2017 Recordable Rate 3
Slide 41: Environmental Stewardship
United States Steel Corporation Environmental Stewardship Being a good corporate citizen requires a dedicated focus • We are committed to effective environmental stewardship • We have been improving and will continue to improve our environmental performance • We have investigated, created and implem
Slide 42: Commitment to environmental standards and communities
We are committed to complying with all environmental standards, to ensuring the safety of our employees and our neighbors in the communities in which we live and operate, and to safeguarding our shared environment. We take that responsibility very seriously and recognize this as a critical aspect of
Slide 43: Trade Update
United States Steel Corporation Trade Update Seeking a level playing field • Current Administration focused on fair trade • Favorable decision on Vietnam circumvention case • Recent Section 201 decision – enforcing the rules • Strongly supporting potential Section 232 actions • Continue to pursue vi
Slide 44: Trade actions and enforcement commentary
We are encouraged by the Trump Administration’s actions to address the threat to the U.S. manufacturing base, our economic competitiveness and our national security from unfairly traded steel imports and global excess capacity. We applaud the Commerce Department’s preliminary decisions that imports
Slide 45: Appendix
United States Steel Corporation © 2011 United States Steel Corporation Appendix
Slide 46: Other Items
United States Steel Corporation Capital Spending* 2017 actual: $505 million 2018 estimate: $850 million Depreciation, Depletion and Amortization* 2017 actual: $501 million 2018 estimate: $495 million Pension and Other Benefits Costs 2017 actual: $187 million 2018 estimate: $195 million Pension and O
Slide 47: Flat-Rolled Segment: major end markets summary
United States Steel Corporation Flat-Rolled Segment Major end markets summary Automotive Last 4 months of 2017 vehicle sales accelerated to 17.9 SAAR average, to pull the full year total sales up to almost 17.1 million. First year of the auto recovery that sales were lower than the prior year, down
Slide 48: U. S. Steel Europe Segment: major end markets summary
United States Steel Corporation U. S. Steel Europe Segment Major end markets summary Automotive EU car production reached 4.9 million units in 4Q 2017, an increase of 7.5% y-o-y. In 2017, car production reached 19 million units, an increase of 1.5% y-o-y. Increase of 2.4% y-o-y to 19.4 million units
Slide 49: Tubular Segment: market industry summary
United States Steel Corporation Tubular Segment Market industry summary Oil Rig Count The oil rig count averaged 743 during 4Q, a decrease of 2% quarter over quarter (q-o-q). As of January 26, 2018, there were 759 active oil rigs. Gas Rig Count The natural gas rig count averaged 178 during 4Q, a dec
Slide 50: U. S. Steel Commercial: Contract vs. Spot
United States Steel Corporation U. S. Steel Commercial – Contract vs. Spot Contract vs. spot mix – twelve months ended December 31, 2017 Flat-Rolled Contract: 79% Spot: 21% 10% 21% 31% 1% 22% 15% Market Based Semi annual* Market Based Monthly* Market Based Quarterly* Spot Cost Based Firm Tubular Pro
Slide 51: Fourth Quarter 2017 vs. Third Quarter 2017 EBITDA bridges
United States Steel Corporation Fourth Quarter 2017 vs. Third Quarter 2017 Flat-Rolled segment EBITDA Bridge 3Q 2017 vs. 4Q 2017 ($ Millions) $181 $9 $17 $243 4Q 2017 Other Maintenance & Outage Raw Materials ($11) Commercial ($77) 3Q 2017 Commercial change primarily due to lower average realized pri
Slide 52: Total Corporation Adjusted EBITDA Bridge
United States Steel Corporation Total Corporation Adjusted EBITDA Bridge Full Year 2016 vs. Full Year 2017 ($ Millions) $180 $1,087 $510 Other Maintenance & Outage ($311) Raw Materials ($806) Commercial $1,514 Full Year 2016 Full Year 2017 Total Corporation Adjusted EBITDA Bridge Full Year 2016 vs.
Slide 53: Carnegie Way benefits
United States Steel Corporation 1 Carnegie Way benefits are based on the incremental impact in 2017 as compared to 2016 as the base year. 54% 36% 8% 2% Manufacturing Supply Chain & Logistics SG&A Other By Category 70% 20% 9% 1% Flat-Rolled U. S. Steel Europe Tubular Other Businesses By Segment Full
Slide 54: Iron Making key projects
United States Steel Corporation Future Projects1 Completed Projects1 Key projects 1 Projects listed are examples and are not inclusive of all iron making asset revitalization investments ▪ Great Lakes Works D4 BF No. 1 Stove Rebuild – $12 million / To be completed 3Q18 / Improves reliability and pro
Slide 55: Steel Making key projects
United States Steel Corporation Key projects 1 Projects listed are examples and are not inclusive of all steel making asset revitalization investments Future Projects1 ▪ Gary Works No. 2 QBOP West Furnace Feeder and Pulpit PLC – $2 million / To be completed in 2Q18 / Improves reliability ▪ Great Lak
Slide 56: Hot Rolling key projects
United States Steel Corporation Key projects Future Projects1 ▪ Great Lakes HSM 567 Coiler Hydraulic System Replacement – $4 million / To be completed in 3Q18 / Improves reliability ▪ Gary Works Finish Remaining Discharge Tables with Quick Change – $2 million / To be completed 3Q18 / Improves qualit
Slide 57: Finishing key projects
United States Steel Corporation Future Projects1 Completed Projects1 Key projects ▪ Great Lakes Works CGL Rapid Jet Cooling 40% Hydrogen – $2 million / Completed 4Q17 / Improves efficiencies, productivity and yield ▪ Mon Valley Works No. 2 Grinder – $2 million / Completed 4Q17 / Improves reliability
Slide 58: Reconciliation of segment EBITDA
United States Steel Corporation Reconciliation of segment EBITDA Segment EBITDA – Flat-Rolled ($ millions) 4Q 2016 3Q 2017 4Q 2017 2016 2017 Segment earnings (loss) before interest and income taxes $65 $160 $92 ($3) $380 Depreciation 82 83 89 349 352 Segment EBITDA $147 $243 $181 $346 $732 Segment E
Slide 59: Reconciliation to Segment EBITDA and Consolidated EBITDA in Outlook
United States Steel Corporation Reconciliation to Segment EBITDA and Consolidated EBITDA Included in Outlook ($ millions) FY 2018 Projected net earnings attributable to United States Steel Corporation included in Outlook $685 Estimated income tax expense 50 Estimated net interest and other financial
Slide 60: Reconciliation of net debt
United States Steel Corporation Reconciliation of net debt Net Debt ($ millions) YE 2015 YE 2016 YE 2017 Short-term debt and current maturities of long-term debt $45 $50 $3 Long-term debt, less unamortized discount and debt issuance costs 3,093 2,981 2,700 Total Debt $3,138 $3,031 $2,703 Less: Cash
Slide 61: Reconciliation of cash conversion cycle
United States Steel Corporation Reconciliation of cash conversion cycle Cash Conversion Cycle 4Q 2017 4Q 2016 $ millions Days $ millions Days Accounts Receivable, net $1,379 43 $1,248 42 + Inventories $1,738 58 $1,573 63 − Accounts Payable and Other Accrued Liabilities $2,163 71 $1,665 62 = Cash Con
Slide 62: Reconciliation of reported and adjusted net earnings (loss)
United States Steel Corporation Reconciliation of reported and adjusted net earnings (loss) ($ millions) 4Q 2016 3Q 2017 4Q 2017 2016 2017 Reported net earnings (loss) attributable to U. S. Steel ($105) $147 $159 ($440) $387 Gain associated with retained interest in U. S. Steel Canada Inc. ─ ─ ─ ─ (
Slide 63: Reconciliation of reported and adjusted diluted EPS (LPS)
United States Steel Corporation Reconciliation of reported and adjusted diluted EPS (LPS) ($ per share) 4Q 2016 3Q 2017 4Q 2017 2016 2017 Reported diluted EPS (LPS) ($0.61) $0.83 $0.90 ($2.81) $2.19 Gain associated with retained interest in U. S. Steel Canada Inc. ─ ─ ─ ─ (0.41) Loss (gain) on equit
Slide 64: Reconciliation of adjusted EBITDA
United States Steel Corporation Reconciliation of adjusted EBITDA ($ millions) 4Q 2016 3Q 2017 4Q 2017 2016 2017 Reported net earnings (loss) attributable to U. S. Steel ($105) $147 $159 ($440) $387 Income tax provision (benefit) (2) ─ (89) 24 (86) Net interest and other financial costs 43 98 78 251