United States Steel stock dropped after the company provided a disappointing look into second-quarter results.
The steel sector has been badly beaten up by the pandemic, trade woes and the threat of more domestic steel supply. But a lot of bad news is already reflected in stock prices. Wednesday’s news really shouldn’t have come as a surprise. There are even a couple of positive steel data points for investors to mull over.
U.S. Steel (ticker: X) said it would lose about $315 million in Ebitda, short for earnings before interest, taxes, depreciation, and amortization. That amount excludes restructuring spending of about $100 million. Wall Street was looking for a loss of just $135 million.
The loss is much wider than expected, but predicting costs is hard when plants aren’t making steel. The industry has a very high fixed-cost base. Ramping down production always produces large losses.
“As expected, the second quarter is being significantly impacted by the effects of Covid-19 and the expected nonrecurring costs associated with a significant portion of our steelmaking operations being idled in the quarter,” said CEO David Burritt in the company’s news release. He expects the second quarter to mark the low point of the year. He was more optimistic about the future. “OEM restarts are progressing well and customer demand has started to return.”
