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Why U.S. Steel’s 4Q15 Results Sparked a Selling Spree (Continued from Prior Part) Cash burn
Previously, we looked at U.S. Steel’s 4Q15 shipments and earnings. Along with these metrics, it’s important for investors to look at the free cash flows. Generating negative free cash flows would lead to cash burn. U.S. Steel (X) is already grappling with a huge debt pile. Negative free cash flows would only make things worse.
Negative free cash flows
- U.S. Steel generated negative free cash flows of $180 million in fiscal 2015. The company burnt cash in each quarter last year as can be seen in the graph above.
- Though U.S. Steel burnt cash last year, other steel companies managed to generate positive free cash flows. Steel Dynamics (STLD) and AK Steel (AKS) posted positive free cash flows in 2015 despite challenging market conditions.
- Nucor (NUE) has also generated positive free cash flows in the first three quarters of fiscal 2015. It’s important to note that Nucor is the only US steel company to carry an investment-grade (BND) credit rating.
Outlook
U.S. Steel has slashed its 2016 capital expenditure budget to $350 million. Last year, the company’s capital expenditure was in excess of $500 million. Also, U.S. Steel estimates its cash requirements for interest payments, dividends, and pension obligations to total $350 million this year. These expenses will be a drag on U.S. Steel’s 2016 cash flows. However, U.S. Steel is looking at a working capital reduction of $500 million, which will enhance its cash position. Nonetheless, even after accounting for a working capital reduction, U.S. Steel expects a cash burn of $200 million this year if market conditions don’t improve.
In the next part, we’ll look at upside as well as downside risks to U.S. Steel’s 2016 guidance.
Continue to Next Part Browse this series on Market Realist:
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United States Steel Corporation
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CODE : X |
ISIN : US9129091081 |
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United States Steel est une société de production minière de fer et de étain basée aux Etats-Unis D'Amerique. United States Steel est cotée aux Etats-Unis D'Amerique. Sa capitalisation boursière aujourd'hui est 6,4 milliards US$ (5,7 milliards €). La valeur de son action a atteint son plus bas niveau récent le 28 mars 2003 à 10,01 US$, et son plus haut niveau récent le 30 novembre 2007 à 98,85 US$. United States Steel possède 176 184 431 actions en circulation. |