U.S. Steel Corp. rode strong prices and demand to post the biggest quarterly profit in its 107-year history -- $919 million -- but executives warned Tuesday the world economic downturn will hurt the steelmaker in the fourth quarter.
"We expect a decline in fourth-quarter results, mainly due to softening demand and prices for flat-rolled products in North America and Europe, and we expect to continue to operate at reduced production levels," U.S. Steel CEO John P. Surma told analysts.
U.S. Steel's third-quarter net income, which calculates to $7.79 a share, increased sharply from the same three-month period in 2007, when it earned $269 million, or $2.27 a share.
The third-quarter profit outpaced second-quarter earnings of $668 million, or $5.65 a share.
Sales jumped to $7.31 billion, compared with $4.35 billion a year ago, and were higher than second-quarter sales of $6.74 billion.
The stock market reacted to U.S. Steel's earnings by boosting the share price by 14.2 percent to $35.20 a share, up $4.38.
U.S. Steel's performance was "tremendous," said steel analyst Charles Bradford of Bradford/Soleil Research of New York. But he issued a warning to expect lower earnings in the fourth quarter.
The price of spot steel -- product sold outside a long-term contract -- is down more than $100 a ton from the third quarter, Bradford said. He cut his fourth-quarter earnings estimate to $4.80 a share.
"The trend is not good," Bradford said. "They're going to get hit hard in Europe in the fourth quarter," and the company won't reach the operating profit of $835 million it generated from its flat-rolled steel operations in the third quarter, he said.
U.S. Steel has been anticipating a slower fourth quarter because of the normal seasonal downturns but "nothing as abrupt as has transpired," Surma said. The economic crisis has resulted in a lowering of inventory levels, and that may continue until the steel stockpiles fall another one million tons, he said.
The company shipped 6.43 million tons of steel products in the third quarter, up from 5.55 million tons a year ago.
It sold flat-rolled steel at an average price of $900 a ton for the quarter, compared to $648 a ton a year ago, and prices for tubular products for the oil and gas industry almost doubled --- to an average of $2,390 a ton compared to $1,292 a ton in the third quarter of 2007.
U.S. Steel's record earnings were announced one week after Allegheny Technologies Inc., a Pittsburgh-based specialty metals company, lowered its earnings guidance for the fourth quarter and the full year. U.S. Steel did not offer specific guidance for the fourth quarter.
Surma would not disclose operating rates for the company's mills at the end of the quarter but said they were well below the average operating rates for the entire quarter, when it operated at 86.5 percent of capacity. He said current operating rates are well below that level.
Shipments of flat-rolled steel are down because of the slowdown in the automotive industry and softening orders from steel service centers, Surma said. But orders of tubular products have been good.
Lower fuel prices have not translated into a drop in drilling activity, although Surma did not rule that out.
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