United States Steel Corporation · NYSE:X
United States Steel — Q2 2017 Earnings Presentation
59 slides from United States Steel's earnings presentation, Jul 25, 2017
Slide 1: Second Quarter 2017 Earnings Presentation
United States Steel Corporation Second Quarter 2017 Earnings Presentation July 25, 2017 © 2011 United States Steel Corporation
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Slide 3: Forward-looking Statements
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 second quarter of 2017. They should be read in conjunction with the consolidated financia
Slide 4: Explanation of Use of Non-GAAP Measures
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) and adjusted EBITDA, which are all non-GAAP measures, as additional measurements to e
Slide 5: 2017 Outlook
United States Steel Corporation 2017 Outlook If market conditions remain at their current levels, we expect: • 2017 net earnings of approximately $300 million, or $1.70 per share, and consolidated adjusted EBITDA of approximately $1.1 billion. o EBITDA by Segment; • Flat-Rolled EBITDA of approximat
Slide 6: Outlook commentary: more bullish market sentiment
6 We are seeing a more bullish sentiment in the markets served by our Flat-Rolled and European segments right now, as prices have been increasing and overall demand has been stable. Our Tubular segment continues to benefit from operational and cost improvements we have made, as well as from stronger
Slide 7: Flat-Rolled Segment asset revitalization program
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 projects to reduce execution risk • Adaptable to changing bus
Slide 8: Asset revitalization program is a comprehensive investment plan
Our Flat-Rolled segment asset revitalization program is a comprehensive investment plan with a continuous focus on improving safety, quality, delivery and costs. As we revitalize our assets, we expect to increase profitability, productivity, operational consistency, and reduce volatility. This progr
Slide 9: 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 ▪ Converting liquid iron to liquid steel ▪ Converting liquid steel to steel slabs ▪ Converting slabs to hot rolled coils ▪ Pickling
Slide 10: Capital spending of approximately $1.2 billion from 2017 through 2020
10 We currently expect capital spending for our asset revitalization program to be approximately $1.2 billion from 2017 through 2020. We are investing in our assets throughout the entire production process, with targeted improvements in operating efficiency, unplanned downtime, reliability, quality
Slide 11: Project update
Project update United States Steel Corporation Production Process Completed Project Future Project Iron Making • Great Lakes Works B2 Blast Furnace Bell and Hopper Replacement • $4 million invested (capital + expense) • Completed in 2Q 2017 • Reduces costs and improves reliability • Gary Works #6 BF
Slide 12: Projects completed in the first six months of 2017
12 We completed 65 projects in the first six months of 2017 with total capital spending (completed + in progress projects) of approximately $30 million. We expect to complete 80 projects in 3Q with total capital spending (completed + in progress projects) of approximately $70 million. Iron Making –
Slide 13: Performance Scorecard
Quality % Improvement vs. 2016 Base Unplanned Maintenance Downtime % Improvement vs. 2016 Base United States Steel Corporation Capital Spending $ Millions Performance Scorecard EBITDA improvement $ Millions $275-$325 M 2020 Target 2017 Target $1,200 M 2020 Target 2017 Target $200 - $250M +25% 2020 T
Slide 14: Performance scorecard metrics for tracking the program
14 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 demonstrate how successfully we are implementing the progra
Slide 15: Annual maintenance and outage expense
1H 2017 Actual FY 2017 Forecast $1,300 FY 2016 Actual $640 $950 FY 2015 Actual $964 $ Millions Annual maintenance and outage expense Flat-Rolled Segment United States Steel Corporation
Slide 16: Flat-Rolled maintenance and outage expense outlook
16 We currently expect total maintenance and outage expense for our Flat-Rolled Segment to be approximately $1.3 billion in 2017. This amount includes all normal maintenance and outage expense as well as maintenance and outage expense related to our asset revitalization program, and is a $350 millio
Slide 17: Market Updates
United States Steel Corporation Flat-Rolled June vehicle sales 3% lower than May to a SAAR of 16.41 million 2017 U.S. appliance shipments expected to increase 4-6% The June Architectural Billing Index (construction leading indicator) up 2% versus May to 54.2 June MSCI carbon flat-rolled inventory at
Slide 18: Trends in the markets we serve
18 We constantly monitor trends in the markets we serve, and receive updates in those markets directly from our customers as well as external publications. This information indicates: • June U.S. vehicle sales were down 3% versus May to a seasonally adjusted annual rate (SAAR) of 16.41 million; inve
Slide 19: Business Update: Operating updates
United States Steel Corporation Business Update Iron ore mining facilities Steel making facilities Flat-Rolled finishing facilities Tubular facilities U. S. Steel Europe Operating updates
Slide 20: Flat-Rolled operating status of facilities
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 21: Global Safety Performance
Global OSHA Recordables Frequency of Injuries (per 200,000 manhours) Total Severity Performance Frequency of Days Lost/Restricted (per 200,000 manhours) Global Safety Performance United States Steel Corporation Days Away From Work Frequency of Injuries (per 200,000 manhours) 0.76 0.97 0.88 0.94 2016
Slide 22: Zero harm safety culture and benchmarks
22 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 Rat
Slide 23: Financial Flexibility
Cash from Operations $ Millions Total Estimated Liquidity $ Millions Financial Flexibility United States Steel Corporation Cash and Cash Equivalents $ Millions $377 ($135) $150 $264 $200 3Q 2016 2Q 2016 4Q 2016 1Q 2017 2Q 2017 Net Debt $ Millions $1,522 $1,515 $755 $1,354 YE 2015 YE 2016 2Q 2017 YE
Slide 24: Cash from operations and liquidity commentary
Net cash provided by operating activities was $377 million in the second quarter compared to net cash provided by operating activities of $200 million in the same period last year. The change is primarily due to improved financial results and the receipt of approximately $127 million from the sale a
Slide 25: Second Quarter 2017 Results
Segment Earnings (Loss) Before Interest and Income Taxes $ Millions Adjusted EBITDA $ Millions Note: For reconciliation of non-GAAP amounts see Appendix Second Quarter 2017 Results United States Steel Corporation Adjusted Net Earnings (Loss) $ Millions Increased shipments and selling prices reflecte
Slide 26: Second quarter performance and strategic priorities
26 Our facilities performed better in the second quarter, particularly in our Flat-Rolled segment. Better operations, combined with higher prices and volumes in all of our segments and improved results from our mining operations, resulted in a $300 million improvement in our segment results compared
Slide 27: Flat-Rolled EBITDA Bridge
Earnings (Loss) Before Interest and Income Taxes $ Millions Flat-Rolled EBITDA Bridge 1Q 2017 vs. 2Q 2017 ($ Millions) Second Quarter 2017 Flat-Rolled Segment United States Steel Corporation EBITDA $ Millions Note: For reconciliation of non-GAAP amounts see Appendix $218 ($90) $65 $114 $6 2Q 2017 1Q
Slide 28: Flat-Rolled second quarter results commentary
28 Second quarter results for our Flat-Rolled segment improved significantly compared with the first quarter, primarily due to higher results from our mining operations and a second consecutive quarter of increasing average realized prices and shipments. The higher results from our mining operations
Slide 29: U. S. Steel Europe EBITDA Bridge
Earnings (Loss) Before Interest and Income Taxes $ Millions U. S. Steel Europe EBITDA Bridge 1Q 2017 vs. 2Q 2017 ($ Millions) Second Quarter 2017 U. S. Steel Europe Segment United States Steel Corporation EBITDA $ Millions Note: For reconciliation of non-GAAP amounts see Appendix European operations
Slide 30: European segment second quarter results commentary
30 Second quarter results for our European segment declined compared with the first quarter due to an unfavorable first-in-first-out (FIFO) inventory impact, only partially offset by increased average realized prices and shipments, lower raw material and energy costs, and a favorable impact from for
Slide 31: Tubular EBITDA Bridge
Earnings (Loss) Before Interest and Income Taxes $ Millions Tubular EBITDA Bridge 1Q 2017 vs. 2Q 2017 ($ Millions) Second Quarter 2017 Tubular Segment United States Steel Corporation EBITDA $ Millions Note: For reconciliation of non-GAAP amounts see Appendix ($29) ($57) ($87) ($75)($78) 2Q 2017 1Q 2
Slide 32: Tubular segment second quarter results commentary
32 Second quarter results for our Tubular segment improved compared with the first quarter due to increased average realized prices and shipments, as well as operational efficiencies. These benefits were partially offset by increased substrate costs. 1Q 2017 vs. 2Q 2017 EBITDA Bridge: Commercial – T
Slide 33: Improving Profitability: EBITDA per ton by segment
Flat-Rolled Segment $ / short ton Source: Company Filings Improving Profitability EBITDA / Ton improvements greater than changes in average realized prices ($200) ($150) ($100) ($50) $0 $50 $100 $150 $400 $500 $600 $700 $800 $900 $1,000 1Q 2009 4Q 2009 3Q 2010 2Q 2011 1Q 2012 4Q 2012 3Q 2013 2Q 2014
Slide 34: Improving earnings power despite lower realized prices
34 The charts above highlight our improving earnings power despite lower average realized prices. The decisions we have made to exit unprofitable businesses, aggressively address our cost structure, optimize our facility footprint for current market conditions, and generally address the things we ca
Slide 35: Carnegie Way benefits, full year 2017 impact
Carnegie Way 12% 55% United States Steel Corporation Carnegie Way Benefits1 – Full Year 2017 Impact $ Millions 1 Carnegie Way benefits are based on the incremental impact in 2017 as compared to 2016 as the base year. $80 $310 $390 Total 2017 benefits announced to date Additional announced today Prev
Slide 36: Carnegie Way methodology and top projects
36 Our Carnegie Way methodology continues to yield meaningful improvements for the organization. There is room to grow as each Commercial Entity continues to drive the Carnegie Way method tools deeper into their organization. Including the benefits from projects we implemented during the second quar
Slide 37: Appendix
© 2011 United States Steel Corporation Appendix United States Steel Corporation
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Slide 39: Iron Making key projects
Future Projects1 Completed Projects1 Iron Making United States Steel Corporation Key projects 1 Projects listed are examples and are not inclusive of all iron making asset revitalization investments ▪ Gary Works #6 BF Outage – $26 million / To be completed in 4Q / Improves reliability ▪ Mon Valley W
Slide 40: Steel Making key projects
Steel Making 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 Casters A Line Turret Bearing – $6 million / To be completed in 4Q / Improves reliability ▪ Mon Valley Wor
Slide 41: Hot Rolling key projects
Hot Rolling United States Steel Corporation Key projects Future Projects1 ▪ Gary Works HSM Furnace Burners – $2 million / To be completed 4Q / Improves efficiency and reduces natural gas usage ▪ Mon Valley Works HSM #6 Discharge Table / Rolls and Bearings Replacement – $1 million / To be completed 3
Slide 42: Finishing key projects
Future Projects1 Completed Projects1 Finishing United States Steel Corporation Key projects ▪ Midwest Tin ETLM Plater Structural Repairs – $1 million / Completed in 2Q / Reduces costs ▪ Great Lakes Works Desco Rectifier Replacement – <$1 million / Completed in 2Q / Improves quality and reliability •
Slide 43: Major end markets summary: Flat-Rolled Segment
Major end markets summary Flat-Rolled Segment United States Steel Corporation Automotive June vehicle sales fell 3% versus May to a SAAR of 16.41 million; 4 of 6 months below 17 million SAAR YTD. European and Asian manufacturers gaining market share from the Detroit 3 thus far in 2017. Inventories i
Slide 44: Major end markets summary: U. S. Steel Europe Segment
Major end markets summary United States Steel Corporation U. S. Steel Europe Segment Sources: Eurofer, USSK Marketing, IHS, Eurometal, Euroconstruct, BDS Automotive EU car production reached 4.9 million units in 2Q, a decrease of 5.6% y-o-y. EU car production is projected to grow by 2.7% y-o-y in 3Q
Slide 45: Market industry summary: Tubular Segment
Market industry summary Tubular Segment United States Steel Corporation Sources: Baker Hughes, US Energy Information Administration, Preston Publishing, Internal Oil Rig Count U.S. energy companies continued to increase drilling rates during 2Q. The oil rig count averaged 716 during 2Q, an increase
Slide 46: Other Items
United States Steel Corporation Other Items Capital Spending* 2016 actual $306 million 2017 estimate $625 million Flat-Rolled: $475 million, USSE: $80 million, Tubular: $50 million, Other: $20 million Depreciation, Depletion and Amortization* 2016 actual $507 million 2017 estimate $525 million Flat-
Slide 47: U. S. Steel Commercial: Contract vs. Spot
U. S. Steel Commercial – Contract vs. Spot Contract vs. spot mix – twelve months ended June 30, 2017 Flat-Rolled Tubular U. S. Steel Europe Contract: 81% Spot: 19% Contract: 66% Spot: 34% Program: 52% Spot: 48% United States Steel Corporation *Annual contract volume commitments with price adjustment
Slide 48: Flat-Rolled Segment second quarter 2017 prices, EBITDA and shipments
Average Realized Prices $ / Ton EBITDA / Ton $ / Ton Second Quarter 2017 Flat-Rolled Segment Shipments Net tons (Thousands) United States Steel Corporation Adjusted Raw Steel Utilization1 % Flat-Rolled showing meaningful improvement $120 $4 $62 $79 $35 2Q 2017 1Q 2017 4Q 2016 3Q 2016 2Q 2016 $742 $7
Slide 49: U. S. Steel Europe second quarter 2017 prices, EBITDA and shipments
Average Realized Prices $ / Ton EBITDA / Ton $ / Ton Second Quarter 2017 U. S. Steel Europe Segment Shipments Net tons (Thousands) United States Steel Corporation Raw Steel Utilization % Europe operations continue to perform at a high level $62 $96 $66 $92 $67 4Q 2016 2Q 2017 1Q 2017 3Q 2016 2Q 2016
Slide 50: Tubular second quarter 2017 prices, EBITDA and shipments
Average Realized Prices $ / Ton EBITDA / Ton $ / Ton Second Quarter 2017 Tubular Segment Shipments Net tons (Thousands) United States Steel Corporation Results starting to reflect improving market conditions Lone Star welded mill restarted in 2Q ($89) ($292) ($507) ($564) ($871) 4Q 2016 2Q 2017 1Q 2
Slide 51: Pension Expense and funded status
Pension Expense and funded status Participants by Type of Plan Type of Plan 12/31/2003 12/31/2016 Increase/ (Decrease) Defined Benefit 15,574 4,710 (10,864) Multiemployer 6,043 9,730 3,687 Defined Contribution 1,627 3,535 1,908 Total 23,244 17,975 (5,269) Major Assumptions: Discount rate expense: 4.
Slide 52: OPEB Expense and funded status
OPEB Expense and funded status Major Assumptions: Discount rate expense: 4.50% for 2012, 3.75% for 2013, 4.50% for 2014, 3.75% for 2015, 4.25% for 2016, and 4.00% for 2017E Expected rate of return on assets: 7.75% in U.S. & 7.25% in Canada for 2012 through 2014, 7.50% in U.S. for 2015 and 2016, for
Slide 53: Reconciliation of segment EBITDA
United States Steel Corporation Adjusted Results Segment EBITDA – Flat-Rolled ($ millions) 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 Segment earnings (loss) before interest and income taxes $6 $114 $65 ($90) $218 Depreciation 89 87 82 99 81 Segment EBITDA $95 $201 $147 $9 $299 Reconciliation of segmen
Slide 54: Reconciliation to Segment EBITDA and Consolidated Adjusted EBITDA Included in Outlook
United States Steel Corporation Reconciliation to Segment EBITDA and Consolidated Adjusted EBITDA Included in Outlook Reconciliation to Segment EBITDA and Consolidated Adjusted EBITDA Included in Outlook ($ millions) FY 2017 Projected net earnings attributable to United States Steel Corporation incl
Slide 55: Reconciliation of net debt
United States Steel Corporation Net Debt Net Debt ($ millions) YE 2014 YE 2015 YE 2016 2Q 2017 Short-term debt and current maturities of long-term debt $378 $45 $50 $175 Long-term debt, less unamortized discount and debt issuance costs 3,086 3,093 2,981 2,752 Total Debt $3,464 $3,138 $3,031 $2,927 L
Slide 56: Reconciliation of cash conversion cycle
United States Steel Corporation Cash Conversion Cycle Cash Conversion Cycle 2Q 2017 4Q 2016 $ millions Days $ millions Days Accounts Receivable, net $1,444 41 $1,248 42 + Inventories $1,727 58 $1,573 63 − Accounts Payable and Other Accrued Liabilities $2,013 65 $1,665 62 = Cash Conversion Cycle 34 4
Slide 57: Reconciliation of reported and adjusted net earnings (loss)
United States Steel Corporation Adjusted Results ($ millions) 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 Reported net earnings (loss) ($46) $51 ($105) ($180) $261 Gain associated with retained interest in U. S. Steel Canada Inc. ─ ─ ─ ─ (72) Supplemental unemployment and severance costs and other charg
Slide 58: Reconciliation of reported and adjusted diluted EPS (LPS)
United States Steel Corporation Adjusted Results ($ per share) 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 Reported diluted EPS (LPS) ($0.32) $0.32 ($0.61) ($1.03) $1.48 Gain associated with retained interest in U. S. Steel Canada Inc. ─ ─ ─ ─ (0.41) Supplemental unemployment and severance costs and oth
Slide 59: Reconciliation of adjusted EBITDA
United States Steel Corporation Adjusted Results ($ millions) 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 Reported net earnings (loss) ($46) $51 ($105) ($180) $261 Income tax provision (benefit) (7) 19 (2) 19 (16) Net interest and other financial costs 81 62 43 63 68 Reported earnings (loss) before inte