United States Steel Corp

NYSE:X

U.S. Steel Posts Strong Q4 with NSC Merger Update

U.S. Steel wrapped up 2023 with robust financials, reporting $895 million in net earnings for the year and $167 million for Q4 alone. The company is on the verge of a transformative merger with Nippon Steel Corporation, expected to close in mid-2024. Despite a busy quarter marked by strategic investments totalling $425 million and seasonal challenges, the steelmaker maintained a strong balance sheet with $5.2 billion in liquidity and low leverage. Q4 performance was mixed across segments, yet they anticipate a bright start to 2024 predicting Q1 adjusted EBITDA to be between $400 million to $450 million. The merger is seen as a strategic win, promising to bring added value to shareholders, employees, customers, and the wider community while affirming U.S. Steel's commitment to operational and financial excellence.

A Merger in Motion and a Robust Year-End Performance

In lieu of a traditional earnings call, U.S. Steel expressed a palpable enthusiasm towards their recent performance and ongoing developments, notably the impending merger with Nippon Steel Corporation (NSC). The expected completion in the latter half of 2024 promises to mold a steel industry leader capable of addressing the megatrends of deglobalization, decarbonization, and digitization. Meanwhile, U.S. Steel celebrated a record safety year and strong financial results for Q4 2023.

Financial Fortitude with Strategic Investments

CFO Jessica Graziano detailed a financially fruitful year, spotlighting net earnings of $895 million, or $3.56 per diluted share, and Q4 adjusted net earnings of $167 million, or $0.67 per diluted share. U.S. Steel's Q4 EBITDA reached $330 million, underpinned by Mini Mill and Tubular segments' solid performance and year-end adjustment benefits. Despite a negative free cash flow of $244 million, attributed to hefty CapEx investments, the company's balance sheet stood strong with $5.2 billion in liquidity, including $2.9 billion in cash, and a commendable leverage ratio.

Segment Standouts and the Keetac Commencement

The Flat-Rolled and Mini Mill segments demonstrated resilience despite lower steel prices, with EBITDA figures at $128 million and $74 million respectively. The successful launch of the Keetac mining operation reflected U.S. Steel's continuing strategic prowess. The Mini Mill segment experienced an EBITDA margin peak of 19% in December, suggesting optimistic growth potential. Despite facing headwinds, the European segment managed to eke out $3 million in EBITDA, while the Tubular segment excelled with a robust $126 million, propelled by demand and efficient operations.

Forward Momentum with Eyes on Q1 2024

Entering the first quarter of 2024, U.S. Steel projects EBITDA advancement across most segments, driven by rising steel prices and astute contract negotiations. The Mini Mill segment anticipates notable EBITDA increases, while the European segment gears up for challenges stemming from raw materials and CO2 costs. Conversely, the Tubular segment may see EBITDA contraction due to volume and pricing dips. Nonetheless, U.S. Steel forecasts a Q1 adjusted EBITDA between $400 million to $450 million.

NSC Merger Nears as U.S. Steel Eyes Strategic Horizon

Addressing the merger, CEO David Burritt touted the stockholder value and deal certainty the NSC partnership promises, with an all-cash proposal of $55 per share. Confident in regulatory approval, the merger aims to enrich stakeholders, safeguard employment, and galvanize community and industry developments. Firm in their commitment, U.S. Steel and NSC vie to finalize the deal between Q2 and Q3 of 2024, ensuring operational excellence and safety remain cornerstones during the transition.

Closing Remarks: Dedication to Excellence

In conclusion, U.S. Steel's leadership voiced gratitude towards their workforce, articulating a vision of continued preeminence in steelmaking. Amidst the synergy with NSC and the exciting prospects it unlocks, U.S. Steel's allegiance to its roots—safety, environmental excellence, and customer satisfaction—are unwavering, heralding a future as robust as the steel they produce.

[David Burritt, executive]

Hello, everybody. Thank you for watching. And please take some time to review our fourth quarter and full year 2023 earnings materials available here. In light of the pending merger with Nippon Steel Corporation, or NSC, we are not posting a traditional earnings call this quarter. However, we want to highlight our fourth quarter financial results and provide an update on the business. The key word is Excited. Excited about the U.S. Steel now and for the future, excited to have achieved another record safety year, excited to have delivered another strong financial quarter, excited that our in-flight strategic projects are another quarter closer to start-up and excited, of course, by the announcement of the terrific transaction with NSC. Together, U.S. Steel and NSC are looking forward to creating the best deal maker with world-leading capabilities.

We continue to work towards closing the transaction in the second or third quarter of 2024. The preliminary proxy statement filed with the SEC on January 24, has more information on the merger. As we progress towards closing, we remain focused on the performance of the business and on harnessing the megatrends of deglobalization, decarbonization and digitization with artificial intelligence. Our mission is unchanged to deliver profitable and sustainable steel solutions for people and planet.

Now let me turn things over to Jess, who will provide a brief update on our fourth quarter 2023 results.

[Jessica Graziano, executive]

Thanks, Dave. Our fourth quarter capped off another strong year of financial performance in 2023 for U.S. Steel with better-than-expected results in the quarter and great momentum as we begin 2024. For the full year, we reported net earnings of $895 million or $3.56 per diluted share. Fourth quarter adjusted net earnings were $167 million or $0.67 per diluted share. Now both EPS and adjusted EBITDA of $330 million benefited from better performance across our Mini Mill and Tubular segments as well as from favorable impacts of year-end adjustments in inventory in our North American Flat-Rolled segment.

We kept our foot on the gas, continuing to support the on-time execution of our in-flight strategic projects with $425 million of strategic CapEx spent in the fourth quarter. We expected our free cash flow would be negative at $244 million as that strategic CapEx spending was offset by the $181 million of investable cash flow generated by the business. Our balance sheet, it remains strong as steel as we ended the year with $5.2 billion of total liquidity, including $2.9 billion of cash. Our leverage at year-end remains super low at 2x adjusted gross debt to EBITDA.

Let's take a deeper dive into our operating segment results for the fourth quarter. Our Flat-Rolled segment delivered $128 million of EBITDA. As expected, lower steel prices resulted in sequentially lower EBITDA quarter-over-quarter. And in December, we commissioned our direct reduced grade pellet investment at our Keetac mining operations on time and on budget. And this is another proof point of our continuing the successful execution of our strategy. I'll note that the Flat-Rolled segment EBITDA in Q4 includes about $10 million of startup costs related to the Keetac project. Our Mini Mill segment generated $74 million of EBITDA. And notably, the rise in steel prices throughout the quarter led to increasing earnings through quarter end, including 19% EBITDA margin in December. Included in those Mini Mill results are about $12 million of nonrecurring anticipated start-up costs for our in-flight projects at Big River. Adjusting for those expenses, EBITDA margins in our Mini Mill segment would have been a healthy 14% in Q4.

Moving to our European business. We delivered $3 million of EBITDA during the quarter. The favorable impact of higher shipping volumes in the fourth quarter was not enough to offset lower sales prices and an unfavorable mix versus the third quarter. And finally, we generated $126 million of EBITDA in the Tubular segment during the fourth quarter. The sequential improvement was driven mainly by increased customer demand, stronger operational performance and lower raw material costs.

Looking ahead to the first quarter of 2024, in our Flat-Rolled segment, we expect a sequential improvement in Q1 EBITDA. That will come primarily from stronger steel prices and the impact of successful fixed-priced contract negotiations, also be partially offset by the typical seasonal headwinds we see in Q1 from our mining operations in Minnesota. At our Mini Mill segment, we anticipate a sizable improvement in Q1 EBITDA sequentially. The trend I mentioned of rising spot steel prices in the segment as we ended Q4 carries forward, providing momentum for expected higher EBITDA from Big River in Q1.

Our European segment will remain challenged as we start the year. Headwinds in raw material and CO2 costs are expected to more than offset anticipated higher selling prices in the first quarter. In Tubular, we expect a decrease in both volumes and pricing to drive lower sequential EBITDA in the first quarter. But remember, we are still experiencing sustained higher pricing and margins than historical trends for Tubular. And when you add that all up, the first quarter adjusted EBITDA for U.S. Steel is expected to land in the range of $400 million to $450 million. It should come as no surprise that we are receiving questions from stakeholders at this exciting time in U.S. Steel's history.

So here's Dave, to provide responses to some of the more frequently asked questions we have been receiving. Dave?

[David Burritt, executive]

Thanks, Jess. At the outset of the strategic alternatives review process that we announced in August 2023, the Board's stated focus was on running a fair and competitive process and maximizing stockholder value. I can confidently say the transaction with NSC checks both of these boxes. We've heard from many of you over the past several weeks. So let me spend a few moments addressing some questions that may be on your mind.

The merger with NSC was the best proposal received based on value, form of consideration, certainty of payment, certainty of closing and other factors.

First, value, $55 per share all cash was the highest offer we received as a result of the competitive strategic alternative security process. And second, in the board's judgment, a transaction with NSC has the best deal certainty. The transaction with NSC is subject to certain regulatory approvals, and we're confident that we will clear those processes in a timely manner. Details about the Board's recommendation and decision can be found in our preliminary proxy statement, which has been filed with the Securities and Exchange Commission on January 24 and is available on our website.

U.S. Steel and NSC continue to work towards expeditiously closing the transaction. We're excited that NSC has been front and center with key stakeholders, making clear their commitment to them and to the transaction. We continue to expect closing to occur in the second or third quarter of 2024. In the meantime, we are focused on running our business to serve our customers and continuing to deliver strong safety, operating and financial performance.

The transaction with NSC has benefits for all of our stakeholders. For employees, NSC has expressed their commitment to retaining and investing in our talent and to honoring all collective bargaining agreements. For customers, the transaction with NSC will improve the competitive landscape and bring a well-capitalized global steel leader with experience and expertise in blast furnace operations, decarbonization and innovation to the American industry.

For communities, the transaction will secure jobs in our communities and support safe operations in all U.S. Steel facilities. Together, U.S. Steel and NSC will continue to positively impact communities to enhance and improve quality of life and to support projects and opportunities that advance safety, education and environmental stewardship. U.S. Steel will retain its name, continue to mine, melt and make steel in the United States of America and maintain its headquarters in Pittsburgh, which will retain 1,000 jobs in corporate research, commercial, information technology and other areas. As I stated in our December 18 deal announcement, not only does the merger with NSC maximize value for stockholders, but it truly achieves the best for all.

We are confident the transaction will close. Our Board conducted a robust strategic alternatives review process, grounded in facts and data and with the assistance of many experts -- and we anticipated that the transaction would receive serious scrutiny. That's smart. That's as it should be. We are confident that the relevant regulatory agencies will see the great outcomes this transaction will allow for not only our stockholders but also for our customers, employees and communities, and our economy and country, both U.S. Steel and NSC are committed to doing what it takes to close this transaction and are committed to working with all parties involved.

No doubt, U.S. Steel will continue to mine, melt and make the best steel in America today. And after the transaction closing, while supporting jobs and maintain its headquarters in Pittsburgh.

Thanks for watching and for reviewing our earnings materials. We are truly excited about the future for U.S. Steel and are grateful for your support. Above all, we are very grateful to U.S. Steel's employees and the work they do every day. I truly believe they are the best in the steel industry. They're focused on safety and environmental excellence, their dedication to customer satisfaction and their embodiment of our steel principles have brought us to where we are today.

Now let's get back to work safely.