United States Steel
offered investors some good news. It just wasn’t what investors wanted to hear about.
Monday evening, U.S. Steel (ticker: X) told investors to expect third-quarter adjusted net earnings of $1.10 to $1.15 a share. Earnings before interest, taxes, depreciation, and amortization are expected to be about $550 million, while the consensus call among Wall Street analysts tracked by
FactSet
had been for EPS of about $1.03 and Ebitda of about $523 million, according to FactSet.
“A more resilient commercial portfolio and management actions driving higher cost benefits are resulting in better-than-expected performance this quarter,” said CEO David Burritt in a news release. “Today’s guidance also reflects the expected impact on third-quarter financial results from the United Autoworkers union strike announced earlier this month.”
The forecast for third-quarter Ebitda points to a decline from the $804 million reported in the second quarter. Benchmark prices for steel are now at about $700 a ton, down from about $900, partly because the strike is likely to reduce auto production, and thus demand for the metal.
U.S. Steel stock was up 3.2% in midday trading at $31.52 a share, while the
S&P 500
and
Dow Jones Industrial Average
were down 0.5% and 0.7%, respectively.
A gain of more than 3% on a down day for the market is a nice move, but the share price remains stuck between roughly $30 and $32 a share, as it has been since the company disclosed it was evaluating strategic alternatives—Wall Street jargon for a potential sale or other major action—on Aug. 13.
Cleveland-Cliffs
(CLF), another big steel company, disclosed a cash and stock bid for U.S. Steel the same day.
Cliffs is offering $17.50 a share plus 1.023 shares of its stock for each share of U.S. Steel. With Cliffs stock trading at $14.20, its level on Tuesday afternoon, the value of that deal is just over $32 a share, about 1.5% beyond where U.S. Steel stock is trading.
U.S. Steel rejected the offer and has fielded bids from the steel processor Esmark, which dropped out of the bidding process, and other undisclosed parties. Investors seem happy about the guidance, but they really want an update about the sale process.
Until more news emerges, the stock won’t do much, remaining linked to Cliffs’ share price. An update could come any day, but if it doesn’t, implying management hasn’t agreed to anything definitive, investors can count on getting news when U.S. Steel reports its results around the end of October.
The fact that the stock is trading very close to the value of the Cliffs bid is a sign that investors expect that a deal is likely and that it will be worth more than Cliffs’ original bid. If there was a high risk of no deal, the price would be further from what Cliffs has offered. U.S. Steel stock was at less than $23 a share before the Cliffs bid emerged.
Write to Al Root at [email protected]
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