United States Steel, a leading player in the industry, recently shared some positive news. However, it didn't quite align with investors' expectations.
According to a recent announcement, U.S. Steel (ticker: X) anticipates third-quarter adjusted net earnings to range between $1.10 and $1.15 per share. Furthermore, the company expects earnings before interest, taxes, depreciation, and amortization (EBITDA) to be approximately $550 million. This forecast surpasses the consensus estimate of Wall Street analysts tracked by FactSet, who had projected an EPS of around $1.03 and EBITDA of about $523 million.
CEO David Burritt stated in a press release, "A more resilient commercial portfolio and management actions driving higher cost benefits are resulting in better-than-expected performance this quarter." He also acknowledged the impact that the United Autoworkers union strike, announced earlier this month, will have on the third-quarter financial results.
While the predicted EBITDA for the third quarter indicates a decline from the $804 million reported in the second quarter, it is crucial to note that this dip is partly due to benchmark prices for steel falling from approximately $900 per ton to $700 per ton. This decline can be attributed to the strike's expected repercussions on auto production and subsequent demand for the metal.
Despite these challenges, U.S. Steel stock demonstrated resilience and rose by 3.2% in midday trading to reach $31.52 per share. In comparison, the S&P 500 and Dow Jones Industrial Average experienced declines of 0.5% and 0.7%, respectively.
U.S. Steel Stock Evaluating Strategic Alternatives
Despite a gain of over 3% on a down day for the market, U.S. Steel's share price remains stagnant between approximately $30 and $32 per share. This status quo has persisted since the company announced its evaluation of strategic alternatives on August 13th. Cleveland-Cliffs, another major steel company, revealed a cash and stock bid for U.S. Steel on the same day.
Cliffs' offer consists of $17.50 per share along with 1.023 shares of its own stock for each U.S. Steel share. Given that Cliffs stock is currently trading at $14.20, the total value of this deal amounts to slightly over $32 per share, surpassing U.S. Steel's current trading price by about 1.5%.
U.S. Steel has rejected the offer and received bids from Esmark, a steel processor, as well as other undisclosed parties who have since withdrawn from the bidding process. While investors appreciate the guidance, what they truly desire is an update regarding the sale process.
Until further news surfaces, U.S. Steel's stock will likely remain closely tied to Cliffs' share price. Although an update could potentially come at any time, failure to do so would signify that management has not reached any definitive agreements, prompting investors to expect news when U.S. Steel reports its results towards the end of October.
The fact that the stock is currently trading near the value of Cliffs' bid indicates that investors anticipate a probable deal that could exceed the initial offer. If there were a significant risk of no deal, the price would deviate further from Cliffs' proposal. Prior to the emergence of Cliffs' bid, U.S. Steel's stock price stood at less than $23 per share.