By KEVIN NEVERS

U.S. Steel Corporation (USS) is reporting a net income of $235 million or $1.98 per diluted share for the first quarter of 2008, compared to a net income of $35 million or 29 cents per diluted share for the fourth quarter of 2007 and a net income of $273 million or $2.30 per diluted share for the year-ago period.

Net income was reduced by $162 million or $1.36 cents per diluted share by three items: a previously disclosed $45 million pre-tax reserve established as a result of an adverse court ruling pertaining to a power supply contract; a $17 million pre-tax charge for inventory transition effects related to the acquisition of U.S. Steel Canada (USSC); and other items not allocated to segments in the fourth quarter.

Net interest and other financial costs in the first quarter, on the other hand, included a foreign currency gain which increased net income by $70 million or 59 cents per share.

“Net sales grew to a quarterly record of $5.2 billion and profitability increased substantially from the fourth quarter, reflecting sharp improvements in our flat-rolled and European segments on strong operating performances and higher shipments and prices,” said USS Chair and CEO John Surma. “We’ve made excellent progress in integrating our Canadian facilities, which operated during the first quarter at the highest utilization rate in recent years.”

Income from Operations

•Flat-rolled reported $120 million in the first quarter, compared to $53 million in the fourth quarter of 2007 and $75 million in the year-ago period. Flat-rolled operated at 92 percent of capability in the first quarter, compared to 82 percent in the fourth quarter, shipments increased to 4.7 million net tone due to the higher operating rate and the inclusion of full-quarter results for USSC, and prices increased by $19 per net ton to $646. The price increase “reflected the initial effects of rapidly increasing spot prices and higher shipments of semi-finished and hot-rolled product, principally from USSC,” the company said.

•U.S. Steel Europe (USSE) reported $161 million in the first quarter, compared to $85 million in the fourth quarter of 2007 and $206 in the year-ago period. “Cost efficiencies from a record operating performance of 103 percent of capability helped offset the rapid rise in raw materials costs,” the company said. There was also a $39 per net ton increase in realized prices.

•Tubular reported $51 million in the first quarter, compared to $83 million in the fourth quarter of 2007 and $102 million in the year-ago period. That decrease the company attributed to “the rapid increase in costs for semi-finished steel, which were not recovered through price increases in the quarter.”

•Other business—including the results of the iron ore and real estate interests acquired from Stelco Inc. as of Oct. 31, 2007—reported a net loss of $5 million, compared to a net income of $36 million in the fourth quarter of 2007 and $2 million in the year-ago period. “Normal season effects at our iron ore operations in Minnesota caused the decline in results for Other Businesses,” the company said.

More Numbers

•The average realize price per net ton of flat-rolled in the first quarter was $646, compared to $627 in the fourth quarter of 2007 and $650 in the year-ago period; for USSE, $791 per net ton, compared to $752 per net ton in the fourth quarter of 2007 and $669 per net ton in the year-ago period; and for tubular, $1,297 per net ton, compared to $1,299 in the fourth quarter of 2007 and $1,435 per net ton in the year-ago period.

•USS and USSE shipped a total of 6,772 net tons in the first quarter, compared to 5,958 net tons in the fourth quarter of 2007 and 5,087 net tons in the year-ago period. North American facilities produced 5,558 net tons in the first quarter, compared to 4,681 net tons in the fourth quarter and 3,713 in the year-ago period, while USSE produced 1,908 in the first quarter, compared to 1,467 in the fourth quarter and 1,799 in the year-ago period.

•USS reported net sales of $5.196 billion in the first quarter, compared to $4.535 billion in the fourth quarter of 2007 and $3,756 billion in the year-ago period.

•Total income from operations in the first quarter was $266 million, compared to $116 million in the fourth quarter of 2007 and $346 million in the year-ago period.

Outlook

“We expect that segment income from operations will increase substantially compared to the first quarter of 2008 as realized price increases are expected to surpass continuing increases in scrap and other raw materials costs.”

“Second-quarter flat-rolled results are expected to improve significantly from the first quarter as higher spot prices are realized throughout the quarter,” the company said. “Operating levels and shipments are expected to be comparable to the first quarter, while raw materials and energy costs are expected to rise.”

The company also expects tubular results to improve, “as higher prices and shipments are partially offset by further increase in costs, principally for semi-finished steel.”

Posted 4/29/2008