October 28, 2008 / 7:53 PM / 9 years ago

UPDATE 4-U.S. Steel profit up, sees weaker Q4, stock rallies

* Q3 earnings per share $7.79

* Q3 net sales $7.31 billion

* Sees results declining in Europe in Q4

* Sees Q4 tubular comparable to Q3

* Shares rally 11 pct after early fall (Adds CEO comments, stock rally)

By Steve James

NEW YORK, Oct 28 (Reuters) - U.S Steel Corp (X.N) posted a third-quarter profit that more than tripled on higher demand and prices, but it forecast a decline in the fourth quarter, especially in its European operations.

The results released on Tuesday beat Wall Street expectations and U.S. Steel stock, which initially fell 4.4 percent, later rallied to $34.20 in afternoon trading on the New York Stock Exchange, an 11 percent gain.

Chairman and Chief Executive Officer John Surma told Wall Street analysts the company would produce less steel for a while because of higher costs, lower prices and the global economic slowdown.

Asked to detail production cuts, he said only: “We are operating well below rates in the third quarter.”

He said the company had decided to take down one of two blast furnaces at Great Lakes, near Detroit, for maintenance through the end of the year.

“We expect to continue to operate at reduced production levels, corresponding with customer order rates,” he said.

Surma said there had been an “abrupt change” in the steel market in the third quarter.

“What seems to be happening now is that in the credit crisis everybody is trying to take investment capital down and preserve liquidity,” said Surma.

Customer inventories were down, he said “and it may be that consumption ... begins to calibrate a bit and returns to normalcy in the order books” by the end of the year or early next year.

Surma also said he hoped to see the U.S. auto industry, a major steel customer, emerge from the current “mess and morass” as healthy.

Although there has been talk of some carmakers merging, he said: “What really matters is how many cars or vehicles are manufactured in North America. We just want to see them making as many automobiles as they can.”

LOWER SHIPMENTS

Pittsburgh-based U.S. Steel said fourth-quarter results for its flat-rolled products are expected to decrease from the third quarter due primarily to much lower shipments and average realized prices, partially offset by lower raw material costs.

“Based on very weak market conditions, we expect results to decline substantially for U.S. Steel Europe in the fourth quarter,” the company said in a statement.

Fourth-quarter results for its tubular business, which mostly serves the oil and gas industry, are expected to be comparable to the third quarter, U.S. Steel said.

“The results were pretty good, but the big thing is the fourth quarter with substantial declines,” said analyst Charles Bradford of Bradford Research/Soleil.

“I don’t know what they mean by ‘substantial,’ but I read that as perhaps half,” he said.

But Bradford said the fourth-quarter decline was not unexpected as steel prices have been dropping sharply. However, he said he believes 2009 will be a “dismal year for steel,” as the industry’s biggest market -- nonresidential construction -- is expected to be weak.

U.S. Steel said net earnings in the third quarter were $919 million, or $7.79 per share, compared with $269 million, or $2.27 per share, in the same quarter last year. Revenue soared to $7.31 billion from $4.4 billion.

Analysts, on average, were expecting earnings of $7.14 a share and revenue of $7.187 billion, according to Reuters Estimates.

Income from operations surged to $835 million from $170 million in the flat-rolled products business and from $74 million to $420 million in the tubular segment, U.S Steel said. It rose to $173 million from $152 million in U.S. Steel’s European division.

Worldwide steel prices soared nearly 50 percent in the first half of this year on strong demand from China and other developing countries. But since then prices have fallen, and some steelmakers have cut production. (Reporting by Steve James; Editing by Tim Dobbyn and Brian Moss)

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