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U.S. Steel Corp. plunged after delivering a barrage of harsh news, warning of a loss and announcing it will shut down most of its Great Lakes Works facility near Detroit, lay off workers and slash its dividend.

The adjusted loss is expected to be about $1.15 a share in the fourth quarter, with a fully diluted loss of 42 cents for 2019, the Pittsburgh-based company said Thursday in a statement. The industrial giant plans to terminate as many as 1,545 workers from the Michigan plant, reduce its quarterly dividend to 1 cent from 5 cents and prune capital expenditures.

U.S. steel-makers are facing slowing demand in the manufacturing sector, even though mills have enjoyed protection because of Trump administration tariffs. U.S. Steel has been a laggard in the domestic industry, with aging plants that are less efficient than rivals with newer technology. That's led to a spate of operational initiatives under different names that have shifted multiple times since 2014.

The shifting strategies "raise concerns that there's no long-term, overriding execution capability to improve competitiveness," Richard Bourke, a senior credit analyst at Bloomberg Intelligence, said in a note. "Cash costs from layoffs will likely exceed savings from the cuts, in our view."

Bourke cited the "Carnegie Way" cost-cutting initiative, the Asset Revitalization investment program, steel technology projects and its investment in Big River Steel at Osceola, Ark., among the "ever-changing operational priorities."

U.S. Steel's decision doesn't mean the import tariffs placed on steel and aluminum by President Donald Trump aren't working, U.S. Commerce Secretary Wilbur Ross said.

Many of those laid off at the U.S. Steel facility will be able to find work in nearby General Motors Co. and Ford Motor Co. plants, Ross said in an interview Friday with Bloomberg Television. The problem with U.S. Steel's Great Lakes plant, Ross said, is that it was just too costly to run.

"What is happening is they are rationalizing a bit their production so that they will be more competitive in the future as we continue to go forward," he said.

U.S. Steel stock has sunk by about a third this year, hitting the lowest level since 2016 in October, even as the broader U.S. equity market hit all-time highs. The shares dropped 10.8% to $11.92 Friday in New York.

In October, the producer announced a $700 million investment in the Big River mill with rival steel technology to the legacy integrated mills the company has operated. Chief Executive Officer David Burritt surprised some analysts during a conference call after the announcement when he said the new investment would be a core part of the business, conspicuously leaving out Great Lakes Works and the Granite City operation in Illinois -- two legacy mills -- as key to the company's future.

All of this comes more than two years after U.S. Steel shocked investors with a three- to four-year plan to revitalize aging facilities that were choking earnings. Former CEO Mario Longhi stepped down weeks after the unexpected announcement, Burritt stepped into the role, and by July 2017 stated that the projects' price tag would be $1.2 billion.

The company said Thursday that it will indefinitely idle a "significant portion" of the Michigan operation, starting with the iron- and steel-making facilities in April and then the hot-strip mill rolling facility before the end of 2020.

The company's announcement late Thursday was met with a mixed reaction from Jefferies LLC, which said that while the expected loss was worse than analysts had expected, there would be benefits for the industry as a whole from the plant closures.

Although the loss "likely surprises most investors, its proactive move to permanently idle Great Lakes Works is laudable," analysts including Martin Englert said in a note. "We see the shuttering of U.S. flat-rolled steel-making capacity as a broader incremental positive for the domestic industry into 2020 and beyond given the numerous expansions planned by peers."

The Trump administration put 25% duties on imported steel in March 2018, fulfilling a campaign promise to help the steel industry, which the president said was suffering from steel dumping by China and other countries. Michigan, where U.S. Steel's Great Lakes facility is located, was narrowly won by Trump in 2016, helping pave his way to the White House.

"Current market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now," Burritt said in a statement. Production currently at Great Lakes Works will be shifted to Gary Works in Indiana.

It was a stark change from Burritt's comments in 2018 when the company restarted two blast furnaces in Granite City. Back then, the CEO hailed Trump's tariffs for creating the market conditions to boost supply and rehire workers.

Information for this article was contributed by Steven Frank, Jake Lloyd-Smith and Reg Gale of Bloomberg News.

Business on 12/21/2019

Print Headline: Layoffs at U.S. Steel set for 1,545

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