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U.S. Steel Profits Surge 123 Percent

July 30, 2008

By Joe Napsha, The Pittsburgh Tribune-Review

Jul. 30–Taking advantage of strong global demand and pricing, U.S. Steel Corp.’s stock price rose 14 percent on Tuesday after it reported a 123 percent jump in second-quarter profits.

U.S. Steel said its second-quarter net income rose to $668 million, or $5.65 per share, compared to second-quarter 2007 earnings of $302 million, or $2.54 per share. The Pittsburgh-based steelmaker set quarterly records for earnings and sales, which rose to $6.74 billion from $4.22 billion in the same period a year ago.

“All three reportable segments posted record results, reflecting strong operating performance and favorable global pricing dynamics,” U.S. Steel Chief Executive John P. Surma said. Not only did the company benefit from worldwide demand for steel, Surma said in a conference call with analysts, but imports declined as the dollar lost value and the higher ocean transportation costs made it more expensive to ship steel into the U.S. market.

U.S. Steel’s performance exceeded analysts’ expectations of $3.91 per share and the higher-end estimate of $5 per share, Surma said. The company’s stock closed at $165.76 a share, up $20.43.

“These are blowout results,” said UBS Securities Inc. analyst Timna Tanners, who rates U.S. Steel a “buy.”"Every metric that we looked at, we were surprised on the upside.”

Looking ahead, Surma predicted the third quarter should be “reasonably successful.”

Part of the reason for the optimism is that U.S. Steel has been able to implement price increases with some customers for the second half of the year, and talks are continuing with other steel buyers, Surma said. The company has implemented an $800 per ton price increase for all tubular product shipments as of July 1, a reflection of the strong demand.

But U.S. Steel, like other coal customers, is dealing with the cost pressures from higher coal prices. When questioned about whether U.S. Steel would return to the days of operating its own coal mines, Surma said it probably would not be as a direct owner or operator.

“We think it is risky business,” Surma said. He did not rule out taking an equity position of some kind, although “it’s just a conception at this point.”

One of the company’s priorities will be to ensure a cost-effective supply of coke for its steelmaking, Surma said. U.S. Steel last week received approval from the Allegheny County Health Department for permits to begin construction on the first of two new coke oven batteries at its Clairton Coke Works. That project, along with other coke oven projects, will put U.S. Steel in a much better position when finished in the next several years, he said.

Surma did not rule out making any acquisitions, saying the company is looking at “opportunities to add to the tubular segment.”

On the labor front, U.S. Steel is continuing contract negotiations with the United Steelworkers on a new contract for its domestic operations. Surma said he expects an agreement by Sept. 1.

The company announced a 5-cent increase in its dividend, raising it to 30 cents a share from 25 cents. It was the second time this year the company increased its dividend.

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