U.S. Steel reports 1Q profit; shareholders OK change in board elections [The Pittsburgh Tribune-Review :: ]
(Pittsburgh Tribune-Review (PA) Via Acquire Media NewsEdge) April 29--U.S. Steel Corp. on Tuesday reported a first-quarter profit despite operational issues caused by winter weather -- which it said were offset by improved prices and expense cuts from its Carnegie Way initiative.
But the Downtown-based steelmaker forecast reduced income from operations and a loss in its flat-rolled segment in the second quarter that began April 1.
"We expect our production to be limited, which will temporarily slow shipments due to continued weather-related logistical issues affecting both raw materials and finished products," CEO Mario Longhi said.
On April 2, U.S. Steel sent a letter to customers of the Gary, Inc., Works, saying a shutdown of a blast furnace and steelmaking was caused by "unforeseen and unprecedented" ice conditions on the Great Lakes, delaying delivery of raw materials. In addition, three blast furnaces at the Great Lakes plant in Ecorse, Mich., were idled after a March 27 roof collapse. Analysts have said the events could cost millions in lost sales and repair costs.
U.S. Steel said net income was $52 million, or 34 cents a share, compared to a net loss of $73 million, or 51 cents a share, in the same period a year ago. Sales for the January-March period declined to $4.45 billion, down 3.2 percent from $4.6 billion last year.
"Higher natural gas prices and operational issues due to the weather were offset by better commercial prices and Carnegie Way benefits," Longhi said.
But analyst Charles Bradford of Bradford Research Inc. in New York, said the results were "worse than they appeared," citing a $17 million one-time gain from the sale of carbon emission allowances in Europe, which he said accounted for one-third of U.S. Steel's net income. In addition, operating income in its tubular segment, the most profitable, fell to $24 million from $64 million a year ago. U.S. Steel said prices fell because of high import levels.
Bradford said the steelmaker still faces the cost of repairs and upcoming capital projects. "They're trying to hold onto money. They've also got spending ahead for an electric furnace at Fairfield, which costs $100 million."
In January, Longhi said U.S. Steel intends to use an electric furnace and scrap metal to produce steel for the first time in decades, a process that is more efficient than traditional methods. It would replace an aging blast furnace at the plant in Fairfield, Ala., that requires at least $100 million in upgrades.
Operating expenses in the first quarter declined 5.1 percent from a year ago, and average prices rose 5.8 percent in the flat-rolled steel, U.S. Steel's biggest segment. Flat-rolled is used in automotive and appliances.
The steelmaker did not give details of savings from its Carnegie Way initiative, but it previously announced annual cost reductions of $175 million. More details are expected on a conference call on Wednesday.
"Our focus this year will be to continue to execute on our work with discipline and an even greater sense of urgency," Longhi said at the company's annual meeting earlier Tuesday at U.S. Steel Tower, attended by about 50 shareholders and executives.
Shares closed at $26.34, up 61 cents, or 2.4 percent, before results were issued. The stock is down 10.7 percent this year.
At the meeting, shareholders approved a plan requiring U.S. Steel's entire board of directors to stand for re-election annually, following the company's prolonged slump in earnings and stock price.
The company, which has not turned an annual profit in five years, has had a staggered board for 113 years, in which a third of its members come up for election annually for three-year terms. The new plan will begin in 2017.
Critics say such boards are less accountable to shareholders because directors become too cozy with each other and may put the interests of management first. Board members who stand for election annually are under pressure to increase the company's value or risk being ousted after a year.
"Most companies have moved that way. The shareholder pressure and support for this is overwhelming, so most companies just make the change," said Charles Elson of the Weinberg Center for Corporate Governance at the University of Delaware.
Of S&P 500 companies, 70 percent now have annual elections for every board member, up 20 percentage points from 2009, according to ISS Governance QuickScore Data.
Shareholders approved the amendment to company rules, with 52 percent of its outstanding common stock voted in favor of the change. There was no discussion on the issue at the meeting.
Directors elected this year will be the last to get three-year terms, allowing the new system and one-year terms to be fully implemented on the board by 2017.
At the meeting, shareholders elected four directors to serve until 2017: Richard A. Gephardt, Murry S. Gerber, Glenda G. McNeal and Patricia A. Tracey. The company currently has 13 directors.
Shareholders also heard a request from the National Center for Public Policy Research that U.S. Steel consider adopting a policy that guarantees employee jobs will not be affected by outside, legal, personal political activities.
"Earlier this month, the CEO of Mozilla was forced out of his job because he contributed to a 2008 referendum effort defining marriage in California as between one man and one woman," said Justin Danhof, representing shareholder David Ridenour, president of the center. "The idea that a well-qualified individual could be fired for participating in a civic decision-making about marriage laws sent a shock wave across the country, especially in religious communities.
Danhof asked U.S. Steel to consider a code of conduct like Cola-Cola Co.'s, which says, "Your job will not be affected by your personal views or your choice in political contributions."
U.S. Steel's Suzanne Rich Folsom, general counsel, said the company is conducting a policy review, and it would take Danhof's comments under advisement.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.
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