Yahoo Finance Stronger Dollar Hurts US Steel Europe Earnings
Key Investor Takeaways from US Steel's 1Q15 Earnings (Part 5 of 5)
US Steel’s Europe earnings
Previously, we discussed the 1Q financial performance of US Steel’s (X) flat-rolled and tubular segments. In this part, we’ll analyze how its European operations have fared in the quarter. While the other segments witnessed a drop in shipments, US Steel Europe reported a 22% increase in steel shipments on a year-over-year basis. The Eurozone’s (VGK) economic indicators have been steady in 2015 .
Costs down
The previous chart shows the 1Q financial performance of US Steel Europe. As you can see, its unit production costs declined by 12% as compared to 4Q14. US Steel Europe sources most of its raw materials from third parties. It has therefore benefited from the steep fall in iron ore prices. This is unlike its North American operations, where the company has iron ore mining operations also.
The segment posted an earnings before interest, taxes, depreciation, and amortization (or EBITDA) of $57 million in 1Q, similar to its 4Q14 earnings. Europe was the biggest contributor to US Steel’s 1Q EBITDA. ArcelorMittal (MT) and Mechel (MTL) also have operations in Europe.
Strong dollar
US Steel Europe was negatively impacted by the strength of the US dollar (UUP) versus the euro. Most US companies with global exposure have been negatively hit by the dollar’s relative strength against other currencies.
The stronger US dollar has led to higher levels of steel imports. Steel imports from Europe have also climbed in the last couple of quarters.
US Steel has reduced its EBITDA guidance for 2015. While analyzing US Steel’s 4Q earnings, we had expressed apprehension about its ability to meet the ambitious guidance . US Steel now expects to post an adjusted EBITDA between $0.7 billion and $0.9 billion this year.
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