Q4 2021 United States Steel Corp Earnings Call
Okay.
Yeah.
Good morning, everyone and welcome.
There's still corporation fourth quarter and full year 2021 earnings conference call and webcast.
As a reminder, today's call is being recorded.
I'll now hand, the call over to Kevin Lewis, Vice President of Investor Relations and corporate Panic. Okay go ahead Ed.
Thank you Tony Good morning, and thank you for joining our fourth quarter and full year 2021 earnings call.
On behalf of USD.
Like to wish everyone, a happy and healthy 2022.
Joining me on today's call is U S steel president and CEO , Dave Burritt scene.
Senior Vice President and CFO Christie breeds.
And senior Vice President and Chief strategy, and sustainability Officer Rich Fruehauf.
This morning, we posted slides to accompany today's prepared remarks.
And slides for today's call can be found on the USD or investor page under the events and presentation section.
Before we start let me remind you that some information provided during this call may include forward looking statements that are based on certain assumptions and.
And are subject to a number of risks and uncertainties.
And our SEC filings.
Actual future results may vary materially.
Forward looking statements in the press release that we issued yesterday along with our remarks today are made as of today and we undertake no duty to update that with actual events unfold.
I would now like to turn the conference call over to USD, President and CEO , Dave Burritt.
Who will begin on slide four thank you Kevin and thank you everyone for.
This morning too.
2021 was an exceptional year and it puts us on a path for another strong year in 2022 weeks.
We delivered for our stakeholders in 2021, achieving record performance across nearly every part of our business.
Record earnings record EBITDA record EBITDA margin record free cash flow and record safety quality and reliability performance.
Collectively we are pursuing best here at USD and 2021 is a great example of our progress.
But this is just the beginning.
Our progress will continue in 2022 and beyond.
While the market is certainly looking for every reason to be negative about the prospects for this year, we remain overwhelmingly positive.
As expected the first quarter will be seasonally weak, including the normal impacts of our mining operations, but we believe this is just temporary while markets continuing to self correct. The macro backdrop is favorable.
Supply chain issues will ease.
Inflationary pressures will abate.
Saving rates remained high cash remains on the sidelines and demand remains pent up for the markets we serve.
This is a recipe for success and steel and we are optimistic that 2022 demand will accelerate.
After all double through cycle prices.
<unk> a great place to be.
We know about the risks the fed taking rates up too fast.
Unexpected changes to import restrictions geopolitical risks the central West.
The risks are many but we've seen it all before.
We know where we're headed and we know how to get there.
When you were in pursuit constant pursuit of best you're never satisfied.
And challenges will always remain.
We are taking the necessary steps to become less capital and carbon intensity.
Intensive we are executing on strategic investments to expand our capabilities capabilities that will make us a better not bigger steel company.
And we are going to move faster not slower in 2022, because as we like to say, we can't get to the future fast enough.
This isn't a great great Grand theft. These U S steel anymore U S steel's future is incredibly bright.
The solution remains the same execute our best raw strategy by constructing a new greenfield facility and expanding finishing lines through our investments in an electrical steel line and coating line at Big River, while returning capital to stockholders.
We execute we expect to unlock $850 million of additional through cycle EBITDA through state of the art mini mill steel, making and finishing line capabilities.
And we will have.
Further differentiated our sustainability advantages by customers as we continue to deliver against our responsible steel and 2050 de carbonization objectives, while growing our offering of sustainable steel solutions, including vertex.
We know this sounds good right we think so.
But we clearly know this is a show me story so.
We will keep our heads down.
We remain focused and disciplined and we will continue our progress toward our best for all path forward.
Because after all we have to keep showing our stakeholders what best for all means.
It's about continuing to re imagine how steel gets made more sustainably like efforts earned by Big River facility Daimler's 2021 sustainability recognition award.
And it also means continuing to innovate to accelerate and further our best for all progress.
Just this week as an example, we announced a strategic investment and partnership in Carnegie Foundry, leading robotics and artificial intelligence studio in Pittsburgh supported by Carnegie Mellon University.
We look forward to beginning our partnership together as we work to accelerate and scale industrial automation to find new ways to serve our customers.
Our customers are seeing and embracing the transformation that's taking place at USD and we are pleased to be a likeminded regional partner for them.
We look forward to deepening our partnerships to create unique solutions that build on our long term relationships industry, leading innovation and constantly increasing focus on products our competitors haven't imagined.
For our employees and communities.
First for all means investments in their future and our recent announcement that we have selected <unk>, Arkansas as a home for our second mini mill means.
Jobs.
It means a commitment to that community. It means a more secure future for the region and it means a more responsive U S steel to meet the needs of our customers.
<unk> is our newest home and we continue to invest in regions that have supported us steel throughout our history integrated mills and mini mills, our best of both enabling our best for all future <unk>.
And for investors best for all means increasing our future earnings power, while returning capital to stockholders.
We don't believe the market is rewarding us yet for continued strength in 2022 improved through cycle earnings all through the long term value are best for all strategy. So we will continue to buyback our own stock and are pleased to announce an incremental 500 million authorization.
We are generating excess cash and we have an obligation to reward stockholders.
As I said before this isn't your great great Grand Pap is USD and we look forward to continuing to show all our stakeholders the power of best for all.
Let's get into the agenda for todays call on slide five.
On this morning's call we are going to cover three topics before heading into Q&A.
First we will spend some time recapping, our 2021 performance and strategic milestones.
We will provide some additional context on why we are confident.
And third we will spend some time, providing definition on our capital allocation framework and key priorities priorities align with showing our stakeholders, what's best for all means for them.
2021 is record performance has fundamentally changed our business.
As you can see on slide six our record performance in safety, and environmental and customer and operational excellence and in our financial performance is a direct result of executing our strategy over the past several years.
Safety and environmental as an example safety is and will always be first at USD <unk> and is at the core of our steel principles.
We delivered our best safety and environmental performance on record and continue our progress towards our ambitious 2030, and 2050 carbon reduction goals.
We also demonstrated exceptional quality reliability performance when it matters most to deliver for our customers in 2021.
We also delivered record financial performance in 2021, we acted boldly in 2020 to announce the acquisition of the remaining stake in Big River Steel best as the market was gaining momentum.
We moved quickly and are well timed acquisition allowed us to capture the remarkable earnings power a big River steel in 2021, including nearly one $4 billion of EBITDA and 39% EBITDA margin.
Our flat rolled and USDA Europe segments also delivered record financial performance, our integrated operations continue to run well to drive what is expected to be another impressive year in 2022.
Before we pivot to 2022, let me turn it over to Christie to provide some more context on 2020 one's record financial performance Christie.
Thank you, Dave and good morning, everyone I'll begin on slide seven.
Dave mentioned 2021 was a year of record financial performance. We ended the year with adjusted EBITDA of approximately $5 $6 billion and an adjusted EBITDA margin of 28%.
This translated into record free cash flow generation of approximately $3 2 billion, including over $1 billion in the fourth quarter alone.
We expect to generate meaningful levels of free cash flow in 2022 as well.
Adjusted EPS in the quarter was $3 64 per share and was significantly impacted by a noncash year end true up to our tax valuation allowance.
Excluding this impact we outperformed expectations on Aps, just like we did on revenue and adjusted EBITDA.
Our strong performance in 2021 allowed us to transform our balance sheet by repaying over $3 billion in debt in the year and ending the year with seven times leverage.
This type of financial performance allows us to enter 2022 follow up position of strength.
The remaining debt on the balance sheet is manageable with over 80%.
Due until 2029 and beyond our.
Speaker 1: We have plans overfunded. We have no mandatory cash contributions for the foreseeable future and have already de-risked a component of the plan to further strengthen our balance sheet. And we're also ending the year with nearly $5 billion of liquidity, including over $2.5 billion of cash.
Our pension and <unk>.
<unk> are overfunded.
No mandatory cash contributions for the foreseeable future and have already Derisked a component of that is the plan to further strengthen our balance sheet.
And we're also ending the year with nearly $5 billion of liquidity, including over $2 5 billion of cash.
Speaker 1: Before I hand it back today to expand on our 2022 opportunities, I'll spend a few minutes on our segment performance on slide 8.
Before I hand, it back to day to expand on our 2022 opportunities I'll spend a few minutes on our segment performance on slide eight.
Speaker 1: In our flat road segment, we delivered record EBITDA and EBITDA March in 2021, although we're at $3.1 billion and 25% respectively.
In our flat rolled segment, we delivered record EBITDA and EBITDA margin in 2021 of over $3 1 billion and 25% respectively.
Speaker 1: In the first quarter alone, we generated over $1 billion of EBITDA and an EBITDA margin of 30%.
In the fourth quarter alone, we generated over $1 billion of EBITDA and an EBITDA margin of 30%.
Speaker 1: It was a similar scenario for our many-mail segment. 2021 delivered record EBITDA and EBITDA margin of nearly $1.4 billion and 39% respectively. This included $406 million of EBITDA in the fourth quarter and an industry leading 41% EBITDA margin.
It was a similar scenario for our mini mill segment 2021 delivered record EBITDA and EBITDA margin of nearly one $4 billion and 39% respectively. This included $406 million of EBITDA in the fourth quarter and an industry leading 41%.
EBITDA margin.
Well fourth quarter marked the second consecutive quarter of $400 million plus of EBITDA and over 40% EBITDA margins.
Speaker 1: The first quarter marked the second consecutive quarter of $400 million plus of EBITDA and over 40% EBITDA margin.
Speaker 1: Our European operations also posted record EBITDA and EBITDA margin in 2021. EBITDA was nearly $1.1 billion for the year or 25% EBITDA margin.
Our European operations also posted record EBITDA and EBITDA margin in 2021, EBITDA was nearly $1 $1 billion for the year or 25% EBITDA margin.
Lastly, our tubular segment reported nearly $50 million of EBITDA in 2021, including 42 million in the fourth quarter.
Speaker 1: Lastly, our tubular segment reported nearly $50 million of EBITDA in 2021, including 42 million in the fourth quarter of-
Speaker 1: We are leveraging new trade actions where we can and continue to expect the tubular segment to be a more meaningful contributor to our financial performance in 2022.
We are leveraging new trade actions, where we can and continue to expect the tubular segment to be a more meaningful contributor to our financial performance in 2022.
Speaker 1: Dave, I'll turn it back to you to provide more context on 2022 and our balance been discipline the approach to capital allocation.
Dave I'll turn it back to you to provide more context on 2022, and our balanced and disciplined approach to capital allocation.
Speaker 2: Thanks, Christie. We remain bullish for 2022 and slide nine highlights just a few items that support our point of view.
Thanks, Christy we remain bullish for 2022 and slide nine highlights just a few items that support our point of view.
Speaker 2: At its core, consumer demand remains very good. As I mentioned in my earlier remarks, there's a lot of cash sitting on the sidelines with saving rates at elevated levels.
At its core consumer demand remains very good as I mentioned in my earlier remarks, there is a lot of cash sitting on the sidelines with saving rates at elevated levels.
Speaker 2: But supply chain issues have prevented the full potential of consumer demand to shine through. An auto, pen up demand continues into 2022 and using supply chain pressures are driving increased auto production expectations. Auto builds in North America are expected to increase by two million units in 2022 and accelerate as the year progresses.
But supply chain issues have prevented the full potential of consumer demand to shine through.
In auto pent up demand continues into 2022 and easing supply chain pressures are driving increased auto production expectations auto builds in North America are expected to increase by 2 million units in 2022 and accelerate as the year progresses.
Speaker 2: This is a significant improvement over 2021, with room to run as broad glycane issues are resolved.
This is a significant improvement over 2021 with room to run as Brian fly chain issues are resolved.
Speaker 2: In appliances, production in 2022 was expected beyond pace with last year's record output.
And appliances production in 2022 is expected to be on pace with last year's record output.
Speaker 2: and these expectations are materializing and are audible.
And these expectations are materializing in our order book.
Speaker 2: In the US, we're seeing the Ottawa and appliance original equipment manufacturers or OEMs, order book increase each month in the first quarter. Many of these OEM orders carrying new, high-fix, high or fixed contract prices to begin the year.
In the U S.
Seeing the auto and appliance original equipment manufacturers or Oems order book increase each month in the first quarter.
Many of these OEM orders carrying new high fix higher fixed contract prices to begin the year.
Speaker 2: Also, the 10 package business is expected to remain strong in 2022. This is a market we are uniquely positioned to serve and we're pricing was also negotiated significantly higher for 2022. Make no mistake, the success we had on fixed price contracts has generated significant year-over-year up list on our fixed.
Also the <unk> packaging business is expected to remain strong in 2022. This is a market. We are uniquely positioned to serve and where pricing was also negotiated significantly higher for 2020 to make no mistake. The success, we had on fixed price contracts has generated significant year.
Over year uplift.
On our fixed book of business.
Speaker 2: On the market pricing, recent price movement still positions spot indices at two times historical averages. Demand is in line with normal seasonality and auto and appliance activity to us bullish for consumer demand. Meanwhile, the import arbitrage is starting to fade and lead times are normalizing, which we believe are precursors to increased spot market activity and positive price momentum.
On the market pricing recent recent price movement still position spot indices at two times historical averages demand is in line with normal seasonality in auto and appliance activity keeps us bullish for consumer demand.
Meanwhile, the import arbitrage is starting to fade and lead times are normalizing, which we believe are precursors to increased spot market activity and positive price momentum.
Speaker 2: In Europe , pricing has already stabilized close to $1,000 per ton and our order book has been steady.
In Europe pricing has already stabilized close to $1000 per ton in our order book has been steady.
Speaker 2: We expect older entries to accelerate into the seasonally stronger second quarter and are on pace for another strong year for our European operations.
We expect order entries to accelerate into the seasonally stronger second quarter and are on pace for another strong year from our European operations.
Speaker 2: Inter be aware that counts have increased supported by higher oil and natural gas prices. This is driving increased demand and higher pricing for OCTG products.
<unk> rig counts have increased supported by higher oil and natural gas prices. This is driving increased demand and higher pricing for our own CTG products.
Speaker 2: The man is expected to accelerate in 2022, and our EAF and proprietary connections will continue to support higher earnings in 2022.
Demand is expected to accelerate in 2022, and our Eas and proprietary connections will continue to support higher earnings in 2022.
Speaker 2: We are enhancing the customer experience and are seeing tangible results for 2022.
We are enhancing the customer experience and are seeing tangible results for 2022.
Speaker 2: The customer is caught everything we do. We recently partnered with North Oak Southern and Greenbrother to develop a rail car that utilizes US steel proprietary grades resulting in a stronger, lighter, and more capable rail car.
The customer is core to everything we do.
We recently partnered with Norfolk, Southern and Greenbrier to develop a railcar that utilizes U S steel proprietary grades, resulting in a stronger lighter and more capable railcar.
Speaker 2: Through collaboration with U.S. Steel, Norfolk Southern and Greenbrier are able to extend the useful life.
Through collaboration with U S steel, Norfolk, Southern and Greenbrier are able to extend the useful life improve.
Speaker 2: improve their sustainability, and increase the efficiency of each gondola rail car.
Improve their sustainability and increase the efficiency of each Gonzalo railcar.
Speaker 2: This type of product innovation to create solutions is just the latest example. We are focused on continuing these mutually beneficial partnerships in 2022.
This type of product innovation to create solutions is just the latest example, we're focused on continuing these mutually beneficial partnerships in 2022.
Speaker 2: Our transformed balance sheet is another reason we're excited for 2022.
Our transformed balance sheet is another reason we're excited for 2020 to today's strong balance.
Speaker 2: fully funds the strategic projects we've already discussed.
Fully funds the strategic projects, we've already discussed.
Speaker 2: creates a clear path to strategy execution, and is a foundation for our balanced and disciplined approach to capital allocation, including direct returns to stockholders.
Creates a clear path to strategy execution, and as a foundation for our balanced and disciplined approach to capital allocation, including direct returns to stockholders.
Speaker 2: Yesterday, in our earnings press release, we announced a new $500 million stock buyback program. This is in addition to our existing $300 million authorization announced in October 2021, of which approximately $200 million has been repurchased to date under the existing authorization.
Yesterday in our earnings press release, we announced a new $500 million stock buyback program.
This is in addition to our existing $300 million authorization announced in October 2021 of which approximately $200 million has been repurchased to date under the existing authorization.
Speaker 2: We will continue to repurchase our own stock, especially when it is trading at what we believe is a significant discount.
We will continue to repurchase our own stock, especially when it is trading at what we believe is a significant discount.
Speaker 2: Before I detail our enhanced capital allocation priorities, Christy will provide an outlook on our first quarter performance.
Before I detail, our enhanced capital allocation priorities Christie will provide an outlook on our first quarter performance.
Speaker 1: Thanks, Dave. We are on pace to deliver another strong performance in the first quarter. Slide 10 outlines some key considerations for first quarter performance. Our flat road segment is expected to report increased shipments and higher selling prices from reset annual contracts versus the fourth quarter.
Thanks, Dave.
We are on pace to deliver another strong performance in the first quarter Slide 10 outlines some key considerations for first quarter performance.
<unk> segment is it expected to report increased shipments and higher selling prices from reset annual contracts versus the fourth quarter.
Speaker 1: As you know the seasonality of mining will impact the first quarter along with higher coal and natural gas costs which will more than offset the commercial steel tailwind.
As you know the seasonality of mining will impact the first quarter, along with higher coal and natural gas costs, which will more than offset this commercial steel tailwind.
Speaker 1: Recall, each year the locks on the Great Lakes close from mid-January through the end of March. This not only limits our ability to ship pellets to our own operations, but also to ship to third-party customers.
Recall each year's a lot from the Great Lakes close from mid January through the end of March this not only limits our ability to ship pellets to our own operations, but also to ship to third party customers given our increasing presence as a merchant seller of iron ore the seasonal impacts of our mining operations have increase.
Speaker 1: Given our increasing presence as a merchant seller of iron ore, the seasonal impacts of our mining operations have increased from historical levels.
<unk> from historical levels.
Speaker 1: In our mini-mill segment, the shifting hot-rolled-coiled pricing dynamic in the U.S. will be more fully reflected in our average selling price. We expect temporarily lower volumes due to more hot-rolled-coiled product mix than our flat-rolled segment.
And our mini Mills segment, the shifting hot rolled coil pricing dynamic in the U S will be more fully reflected in our average selling price.
<unk> temporarily lower volumes due to more hot rolled coil product mix than our flat rolled segment.
Speaker 1: Last year, U.S. imports of sheet steel increased over 70 percent to a six-year high. This quarter, we continue to monitor surges of low-priced imports and their impact on the market and on our operations.
Last year U S imports of sheet steel increased over 70% to a six year high this quarter, we continued to monitor surges of low priced imports and their impact on the market and on our operations.
Speaker 1: In Europe , steel prices and volumes are expected to be similar to the fourth quarter, while raw material and energy costs will be likely headwind.
And Europe steel prices and volumes are expected to be similar to the fourth quarter, while raw material and energy costs will be likely headwinds.
Speaker 1: In tubular, higher prices are increasingly being reflected in our performance as well as lower scrap costs for our Fairfield EAF. As a result, we expect Tubular's EBITDA to improve again in the first quarter.
In tubular higher prices are increasingly being reflected in our performance as well as lower scrap costs for our Fairfield AAF. As a result, we expect tubular is EBITDA to improve again in the first quarter.
Speaker 2: Dave, back to you. Thanks, Christy. Over the past year, we've talked a lot about our strategy and the continued progress towards our best for all future.
Back to you thanks Christy.
Over the past year, we've talked a lot about our strategy and the continued progress towards our best for all future.
Speaker 2: With each passing quarter, we have transformed the balance sheet.
With each passing quarter, we have transformed the balance sheet.
Speaker 2: announced and advanced critical capability and sustainability-related strategic projects to improve our through-cycle earnings power and reduce our capital and carbon intensity.
Announced an advanced critical capability and sustainability related strategic projects to improve our through cycle earnings power and reduce our capital and carbon intensity and.
Speaker 2: and enhance our direct returns to stockholders.
And enhance our direct returns to stockholders.
Speaker 2: Today, I want to reinforce some important messages and provide more definition around our business priorities and capital allocation framework on slide 11.
Today, I want to reinforce some important messages and provide more definition around our business priorities and capital allocation framework on slide 11.
Speaker 2: a framework that we believe will create long-term stockholder value.
Our framework that we believe will create long term stockholder value.
Speaker 2: As we've discussed this morning, achieving our strategic ambition requires clear priorities and disciplined execution, and the framework we have developed provides the principles we will use over the coming years to develop our strategy.
As we've discussed this morning, achieving our strategic ambition requires clear priorities and disciplined execution and the framework. We have developed provides the principles, we will use over the coming years to.
Our strategy.
Speaker 2: The major theme should be familiar to you, we will maintain a strong balance sheet.
The major theme should be familiar to you we will maintain a strong balance sheet.
Speaker 2: We will invest in capabilities, not to become bigger, but to become better, and we will return capital stockholders as the business continues to perform exceptionally well.
We will invest in capabilities not to become bigger, but become better and we will return capital stockholders as the business continues to perform exceptionally well.
Let's discuss each component of our capital allocation framework in more detail.
Speaker 2: Let's discuss each component of our capital allocation framework in more detail.
Speaker 2: First, we consider a strong balance sheet to be foundational to the success of our strategy.
First we consider a strong balance sheet to be foundational to the success of our strategy.
Speaker 2: We are pleased with the significant progress we've made to reduce our debt, extend our maturity profile, lower our debt service costs, and improve our credit rate.
We are pleased with the significant progress we've made to reduce our debt extend our maturity profile lower our debt service costs and improve our credit ratings.
Speaker 2: As we continue to execute our strategy, we are targeting a through-cycle total vent to EBITDA leverage metric of 3 to 3.5 times.
As we continue to execute our strategy, we are targeting a through cycle total debt to EBITDA leverage metric of three to three five times.
Speaker 2: Based on the progress we've already made to de-lever the balance sheet and the improved through-cycle earnings power of our integrated and mini-mill business model, we are confident that our mid-cycle performance capability more than supports this target.
Based on the progress we've already made to Delever the balance sheet and the improved through cycle earnings power of our integrated and mini mill business model. We are confident that our mid cycle performance capability more than support this target.
Speaker 2: We will continue to evaluate more modest near-term opportunities to repay debt and optimize our capital structure.
We will continue to evaluate more modest near term opportunities to repay debt and optimize our capital structure.
Speaker 2: Second, we believe the highest value-added use of our cash is to fund the announced investments that will transform our earnings profile and increase the consistency of our free cash flow.
Second we believe the highest value added use of our cash is to fund the announced investments that will transform our earnings profile and increase the consistency of our free cash flow.
Speaker 2: U.S. Steel is executing from a position of strength, a position that we've earned through operational and commercial excellence and record-setting EBITDA and free cash flow performance.
U S steel is executing from a position of strength a position that we've earned through operational and commercial excellence and record setting EBITDA and free cash flow performance.
Speaker 2: It is a position that is tremendously valuable and is a catalyst to advancing our strategy, which our customers demand from us.
It is a position that is tremendously valuable and is a catalyst to advancing our strategy, which our customers demand from us.
As we accelerate our transition towards best for all we will protect the successful execution of mini mill number two and the strategic investments, we are making in non grain oriented electrical steel and galvanizing capability at Big River steel by maintaining a cash position no less than <unk>.
Speaker 2: As we accelerate our transition towards best for all, we will protect the successful execution of mini mill number two and the strategic investments we are making in non-grain oriented electrical steel and galvanizing capability at Big River Steel by maintaining a cash position no less than our next 12-month capex.
Our next 12 month Capex.
Speaker 2: This will ensure that our strategic investments will be fully funded by existing cash and free cash flow while preserving our ability to maintain a balanced and disciplined capital allocation strategy.
This will ensure that our strategic investments will be fully funded by existing cash and free cash flow, while preserving our ability to maintain a balanced and disciplined capital allocation strategy.
Speaker 2: Third, as you would expect, we will continue to evaluate investment opportunities to further our best for all strategic transition.
Third as you would expect we will continue to evaluate investment opportunities to further our best for all strategic transition.
Speaker 2: As we seek to lower the sustaining capital requirements of the business, we are sharpening our focus on the types of projects we may pursue in the future. For us, Best for All starts with enhancing our focus on expanding our competitive advantages.
As we seek to lower the sustaining capital requirements of the business. We are sharpening our focus on the types of projects. We may pursue in the future for US best raw starts with enhancing our focus on expanding our competitive advantages.
Speaker 2: low-cost iron ore, mini-mill steelmaking, and best-in-class finishing capabilities, and by returning and by delivering returns of at least...
Low cost iron ore.
Mini mill steelmaking and best in class, finishing capabilities and by returning and.
And by delivering returns.
At least 15%.
Speaker 2: There are no additional capability investments to announce at this time as our focus is on completing the announced projects ahead of schedule and under budget, something our Big River Steel team has demonstrated they are highly capable of doing.
There are no additional capability investments to announce at this time as our focus is on completing the announced projects ahead of schedule and under budget something our Big River steel team has demonstrated they are highly capable of doing.
Speaker 2: Lastly, an important component of our capital allocation framework is stockholder distribution.
Lastly, an important component of our capital allocation framework is stockholder distributions.
Speaker 2: Last quarter, we were pleased to announce our restored $0.05 per share quarterly dividend, and our first priority for direct returns is to maintain that dividend policy.
Last quarter, we were pleased to announce our restored <unk> per share quarterly dividend and our first priority for direct returns is to maintain that dividend policy.
Speaker 2: We plan to supplement our commitment to a quarterly dividend by returning excess cash through measured and opportunistic stock buybacks. This allows for direct participation in capital returns for our investors as we successfully deliver our strategy.
We plan to supplement our commitment to our quarterly dividend by returning excess cash through measured and opportunistic stock buybacks. This allows for direct participation in capital returns for our investors as we successfully deliver our strategy.
Speaker 2: As mentioned earlier, I am pleased to say that our board has authorized a new and incremental repurchase program of $500 million. Our best-for-all future has never been clearer, and we believe the framework described today provides even more definition on how we will advance our disciplined approach to creating stockholder value.
As mentioned earlier I am pleased to say that our board has authorized a new and incremental repurchase program of $500 million.
Our best for our future has never been clear and we believe the framework described today provides even more definition on how we will advance our disciplined approach to creating stockholder value.
We believe our best for our strategy and capital allocation framework delivers a compelling investor proposition a proposition that balances financial strength <unk>.
Speaker 2: We believe our best for all strategy and capital allocation framework delivers a compelling investor proposition. A proposition that balances financial strength, investments that sustainably advance our competitive advantages, and long-term through cycle value creation by increasing our earnings power, improving our free cash flow, and distributing capital to stockholders.
<unk> that sustainably advance our competitive advantages.
And long term through cycle value creation by increasing our earnings power, improving our free cash flow and distributing capital to stockholders.
Speaker 2: I'm pretty bumped up about where we are today and what our future holds. With that, let's get to Q&A.
I am pretty pumped up about where we are today and what our future holds.
With that let's get to Q&A.
Speaker 3: Thank you, Dave. We ask that you each please limit yourself to one question and a follow-up, so everyone has the opportunity to ask a question. Operator, can you please...
Thank you Dave.
We ask that you each please limit yourself to one question and a follow up so everyone has the opportunity to ask a question.
Operator can you please utilize requests.
Speaker 4: Certainly. Thank you. I want to get it on the phone, so if you'd like to register a question, you can press the 1-4 keypad. You wait until it comes up, and you can ask your request. The question has been asked. I could draw your registration. It is a 1, but it's a 3. If you're using a speakerphone, please lift your handset before entering your request. One moment, please.
Certainly thank you once again on the phones as you'd like to register a question, especially <unk>.
<unk>.
So I'll take nausea request question has been asked I could draw. Your restoration is the one that he was.
A speaker phone please lift the handset differ according your request.
One moment please for our first question.
Speaker 4: And we'll get to our first question on the line from David Gagliard, Capital Markets. Go right ahead.
And we'll take our first question on the line from David Caveat.
So markets go right ahead.
Speaker 5: Okay, great. Thanks for taking my questions. I did want to just clarify a little bit on the near-term commentary. I think I missed some of the commentary.
Okay, great. Thanks for taking my questions I did want to just.
Clarify a little bit on the near term commentary.
Some of the commentary so.
Can you expand a little bit on the flat rolled prices volumes up.
Speaker 5: can you expand a little bit on the flat roll, prices up, volumes up, and then also on the mini mill side, because I was a little confused, prices up, volumes up, and flat roll, but offset, I think, by iron ore. So if you could just talk a little more about that, and then again on the mini mill side, can you talk about a little more detail on why you expect things to roll a little bit harder in that business.
And then also on the mini mill side.
Because I was a little confused the prices up volumes up a firewall, but offset I think.
By Iron ore. So if you could just talk a little more about that and then and then again on the mini mills that I can talk about.
A little more detail on why you expect things to roll a little bit harder in that in that business. Thanks.
Speaker 2: Well, there's a there's a there's a lot in that. And David, I think what you're asking for near term first quarter commentary, where we are and where we're headed headed in the near term, because there has been some noise. Am I right? Assuming that's where you're interested in? Because I can tell you, we remain bullish on 2022. And
There's a there's a lot in that David I think what youre asking for near term first quarter commentary, where we are and where we're headed in the near term because there has been some noise in my right, assuming that's where you're interested in because I can tell you.
We remain bullish on 2022 and.
Speaker 2: the strong demand continues. So we still feel the fundamentals of a super cycle, they remain intact and we.
The strong demand continues so we still feel the fundamentals of a super cycle, if they remain intact.
We don't.
Speaker 2: They don't believe we're overreacting to anything in the short term. So I think you got a good question here. But let me just kind of expand on that a bit because I think it's important to provide some context before getting into some of the specifics. You know, the steel industry is on quite a run. So it's easy, I think, to forget just how far we've come.
They don't believe we're over at reacting to anything in the short term. So I think you've got you've got a good question here, but let me let me just kind of expand on that a bit because I think it is important to provide some context before getting into some of the specifics.
The steel industry is on quite a run.
Easy I think to forget just how far we've come.
Speaker 2: Q3 and Q4 2021 represented all-time best performance for the business.
Q3, and Q4 2021 represented all time best performance for the business.
Speaker 2: You know, we're talking about, what is it, $4 billion of EBITDA generated in the second half of last year. So, you know, frankly, we do expect to be a modest step down from Q4. You know, that's for sure. But this shouldn't surprise anyone.
We're talking about what is it $4 billion of EBITDA generated in the second half of last year. So.
Frankly, we do expect to be a modest step down from Q4.
That's for sure, but this shouldn't surprise anyone we fully expect Q1 2022 to be our third highest EBITDA quarter in the past decade, plus and represent another quarter frankly of significant EBITDA and free cash flow generation, but I think a.
Speaker 2: you know we fully expect to Q1 twenty twenty two to be our third highest ebit out quarter in the past decade plus and and and and represent another quarter frankly of significant ebit on free cash flow generation but i think a couple things that everybody needs to remember related to to us deal that maybe folks forget about Q1
Couple of things that everybody needs to remember related to the U S steel that maybe folks forget about Q1 there.
Speaker 2: There are seasonal impacts with our mining operations and they're significant and have become increasingly more material as our presence as a merchant pellet supplier has increased.
There are seasonal impacts with our mining operations and there are significant and have become increasingly more material as our presence as a merchant pellet supplier has increased.
Speaker 2: you know, it's just historically, we've said, seasonal mining headwinds ranged from something like 50 million to 100 million dollars, but we can see 150 million dollars in the first quarter of this year.
Historically, we've said seasonal mining headwinds ranged from something like 50 million to $100 million, but but we could see a $150 million in the first quarter of this year.
Speaker 2: And this headwind will reverse in subsequent quarters and be more than offset through the firm and company.
And this this headwind will reverse in subsequent quarters and be more than offset.
Through the firm and contracted.
Speaker 2: volumes in place for 2022 but but there's obviously these puts and takes with North American flat roll, but
Items in place for 2022, but but Theres. Obviously, these puts and takes with north American flat rolled, but but once you adjust for the impacts of our mining operations. We expect the rest of the segment to perform similarly to the fourth quarter now you mentioned the mini Mills segment.
Speaker 2: but once you adjust for the impacts of our mining operations, we expect the rest of the segment to perform similarly to the fourth quarter. Now, you mentioned the Minimil segment. In our Minimil segment, we're navigating these seasonal impacts on demand as nimble as we can and are optimizing our order book and operations to satisfy the demand. And we're seeing...
And our mini mill segment, where we're navigating these seasonal impacts on demand as nimbly as we can and are optimizing our order book and operations to satisfy the demand and we're seeing.
Speaker 2: in doing that in the most profitable way possible. But let's not forget Big River is a segment within our business with the most hot roll coil exposure.
And doing that in the most profitable way possible, but let's not forget.
Big River is a segment within our business with the most hot rolled coil exposure, which has been a huge benefit for the business over the past year.
Speaker 2: which has been a huge benefit for the business over the past year. And while they are more heavily impacted in the new term in this quarter, we expect them to be well positioned to participate in what we see as an inevitable snapback. And it's also worth noting that in that way, as we speak to further enhance their value added,
And.
While they are more heavily impacted in the near term in this quarter, we expect them to be well positioned to participate in what we see is an inevitable snapback.
It's also worth noting that invest.
Hey, as we seek to further enhance their value added mix with the NGL line and.
Speaker 2: and incremental galvanizing capability. So the EBITDA contribution to Big River will be down, no doubt, quarter over quarter, but this is...
Incremental galvanizing capability. So the EBITDA contribution for Big River will be down no doubt quarter over quarter, but this is an extremely cost effective and efficient operation and we don't expect a material change in their margin profile.
Speaker 2: an extremely cost effective and efficient operation and we don't expect a material change in their margin profile in Q1. And then maybe a little bit on Europe since Christy mentioned in her remarks, we expect a modest step down primarily for energy and raw material headwinds.
In Q1, and then maybe maybe a little bit on Europe . Since Christie mentioned in her remarks, we expect a modest step down primarily for energy and raw material headwinds.
Speaker 2: but again, our operating in Europe are highly cost competitive. And the first quarter should be one of the best quarters in history. And then you didn't mention two-dilivates. And some I'm covering the segments. I do think we have to look at the two-dilivates with, you know, the trend is our friend and expect you one to be higher than...
But again, our operator in Europe , or they are highly cost competitive and the first quarter should be one of the best quarters in history, and then you Didnt mentioned tubular, but since I'm covering the segments here I do think we have to look at the tubular business with.
The trend is our friend and expect Q1 to be higher than.
Speaker 2: Q4. And we expect the segment to continue to benefit from the.
Q4.
This segment to continue to benefit from the the electric arc furnace that due to Lee.
Speaker 2: The electric arc furnace that do put in place and is running well and the momentum we're seeing in the energy sector is very good. So while we're not running this business for the next quarter, we certainly appreciate the interest and...
Put in place and is running well and the momentum we're seeing in the energy sector is is very good. So so while we're not running this business for the next quarter. We certainly appreciate the interest in.
Speaker 5: in how things are developing. Again, the softness, seasonal softness now, but it will become coming back near-term noise, but if we believe it will be coming back and coming back strongly.
And how things are developing again softness seasonal softness now, but it will become coming.
Coming back near term noise, but if we believe it will be coming back and coming back.
Strongly.
Okay.
Okay. That's very helpful. Thank you.
Speaker 5: Okay, that's very helpful. Thank you. Just a quick follow up on some of those comments. Just on the flat roadside. Obviously there's a mixed between contract and spot and thrown through in the first quarter. I'm just trying to get a sense of how much of the volume in the first quarter is expected to be sold under contract versus spot.
A quick follow up on some of those comments just on the flat rolled side.
Obviously, there is a kind of a mix between contract and spot.
And flowing through in the first quarter I'm, just trying to get a sense as to how much of the volume in the first quarter is expected to be sold under contract versus spot.
Yes. This is Kevin so I think the.
Speaker 3: Yeah, this is Kevin. So I think, you know, as the auto supply chain issues ease, you'll see, you know, it's particularly the automotive order entry and accelerate through 2022. I would say that, you know, it's manifesting itself here in the second half of the first quarter and we expected to continue to accelerate in the second quarter and beyond.
Auto supply chain issues, he's youll see.
Particularly the automotive order entry rate accelerate through 2022.
I would say that it's manifesting itself here in the second half of the first quarter and we expect it to continue to accelerate in the second quarter and beyond so probably a little bit more spot index exposure in the first quarter, but as those markets like appliance and.
Speaker 3: So probably a little bit more, you know, spontanex exposure in the first quarter, but as those markets like appliance and autos continue to kind of break through these supply chain disruptions, we should see them become even more meaningful percentages of our shipment.
In autos continue to kind of break through the supply chain disruptions, we should see them become even more meaningful percentages of our of our shipments.
Speaker 3: Kim packaging remains very strong. So that reset will certainly benefit the first quarter and he's substance of quick quarter in the year.
Packaging remains very strong so that reset will certainly benefit the first quarter and each subsequent quarter and the year.
Okay. That's helpful. Thank you very much.
Speaker 4: Thank you. We'll proceed with our next question on the line from the line of Emily Chang with Goldman Sachs. Go right ahead.
Thank you.
Our next question on the line from the line of and let me turn with Goldman Sachs Go ahead ahead.
Speaker 6: Good morning, David and Christine. Thank you for the update today. Maybe my first question is just around that fixed price contract resetting. How do you finish those discussions now? What's the last thing? Any color? Are you able to provide any color around the magnitude of uplifting the same there?
Good morning, Devin Christine Thanks for the update today.
Maybe my first question is just around that fixed price contract rate setting.
Finish those discussions now.
Okay.
Any color around the magnitude of uplift.
Speaker 3: Yeah, so we are our annual fixed price contracts that reset at the beginning of the year. Emily, those have all been successfully completed. We feel like we were tremendously successful in how we negotiated those contracts for the year. You know, we continue to expect, as we mentioned on an earlier call, our average selling prices in 2022 for North American flyer will to reset higher than 2021 as a result of those successful negotiations.
Yes, so we are.
And our annual fixed price contracts that reset at the beginning of the year Emily those have all been successfully completed.
We feel like we.
We were tremendously successful and how we negotiated those contracts for the year.
We continue to expect as we mentioned on an earlier call our average selling prices in 2022 for North American flat rolled to reset higher than 2021 as a result of the successful negotiations. So I would say if anything we're even more confident in the value that we've locked in year over year related to the fixed price contracts 10.
Speaker 3: So I would say if anything, we're even more confident in the value that we've walked in year over year related to the fixed price contracts, right? 10 products, auto products, client products, all seeing meaningful uplifts year over year. There is additional upside potential in April . We have some other fixed price contracts coming to on auto that we're in the midst of negotiating now with our customers and those offer yet another opportunity to create some year over year uplifts. Once again, we have some robust descriptions down screen rundown, so a lot of funds are Apple USDB funds, but your
<unk> auto product appliance products are seeing meaningful uplifts.
Year over year.
There is additional upside potential in April we have some other fixed price contracts coming due on auto that we're in the midst of negotiating with our customers and those offer yet another opportunity to create some year over year uplift. So as you've heard us talking about we're deepening our relationships with our customers.
Speaker 3: And as you've heard us talking about, we're deepening our relationships with our customers. We're deepening the partnership we have with our customers.
Deepening the partnership we have with our customers and that combined with the strong market. We find ourselves in is really allowing us to be successful on fixed price contracts. So I know, it's a bit of a repeat but I think a stronger conviction and we're really pleased with where we see the packaging.
Speaker 2: I know it's a bit of a repeat, but I think it's stronger conviction, and we're really pleased with where we see the packaging, the auto, and the appliance book for 2022. Yeah, you kind of look at where we negotiated some over a year ago, I guess, where the contracts were and the prices were at such a much lower level.
Auto in the appliance booked for 2022, you kind of look at where we negotiated some.
A year ago, I guess, where the contracts where the prices were at such a much lower level, but.
Speaker 2: We clearly find ourselves in a lot better position on these contracts. Christy, do you have something to add here? I think I'm covered. Yeah.
We clearly find ourselves in a lot better positioned on these contracts Christie do you have something to add here I think Kevin covered it okay.
Speaker 6: Great. My second question is just around the volume outlook for Big River Steel. We provided four year 2022 guidance, maybe even backing out for the de-impacted into company shipment. That looks like utilization rates, maybe a little below 90%. Is there an opportunity you should get that higher within that 90% plus range consistently?
Okay. Thanks. My second question is just around the volume outlook something with scale.
We provided.
Going into 2022 guidance.
Even backing out the impact of intercompany shipment it looks like.
Thanks Nathan.
Maybe a little.
A little below 90% is there an opportunity that io within that 90% plus range consistently.
Speaker 3: Yeah, I think 90% utilization Emily is the right way to think about utilization of Big River. I think that's pretty consistent across the, you know, mini mill operations would certainly look to push that higher to the extent possible. But as you rightfully pointed out, this full year shipment guidance we gave for 2022 is, you know, that third party external customer shipments.
Yes, I think 90% utilization Emily is the right way to think about utilization of Big River I think that's pretty consistent across the many know operations would certainly look to push that higher to the extent possible, but as you rightfully pointed out this full year shipment guidance. We gave for 2022 is that third party external customer shipments.
Speaker 3: So you have to keep in mind that some of the synergies of the Big River Activision was leveraging their mouth and their high quality substrate to serve our North American fly-rolled finishing line capabilities. So there is intersegment movement of materials that wouldn't be reflected in those third-party shipments. So...
So you have to keep in mind that some of the synergies of the Big River acquisition was leveraging their milk and they're high quality substrate to serve our north American flat rolled finishing line capabilities. So there is intersegment movement of materials.
Wouldn't be reflected in those third party shipments so.
Speaker 3: No, we are running Big River at the highest level of utilization we can based on the order book that we have and how it fits within.
We are running Big river at the highest level of utilization, we can based on the order book that we have and how it fits within within the footprint. Obviously, the first quarter as we mentioned is going to be seasonally weak.
Speaker 3: Within the footprint obviously the first quarter as we mentioned is going to be seasonally weak
Speaker 2: But we feel pretty good about the four-year prospects for our tire operations, including Big River. Yeah, I think it's important to punctuate that or highlight that, because we do believe it's temporary and we expect Big River steel shipments, the third-party volumes, in 2022 to 2021's record level. So we remain bullish with Big River. And again, we're...
But we feel pretty good about the full year prospects for our entire operations, including including Big River I think important punctuate that or highlight that because we do believe it's temporary and we expect big River steel shipments.
Third party volumes in 2022 to 2021.
Record level, so we remain bullish with big River in again.
Sorting through some seasonality I think as everybody is right now.
Speaker 2: Sorting through some seasonality I think is everybody is right now.
Speaker 4: Thanks very much. I would appreciate what our next question on the line from the line of set was this out with X-raying BNP, correct ahead.
Thank you very much.
Let's see what our next question on the line from the line of Seth Rosenfeld.
<unk> with Exane BNP go right ahead.
Sure.
Speaker 4: Good afternoon. Thanks for your questions today. I can ask two questions, please. First, I get on the call side.
Hey, good afternoon, thanks for taking my questions today.
If I can ask two questions. Please first on the cost side.
Speaker 7: In Europe , I believe these flags, there will be a decrease in your carbon cost in 2022. Can you walk into the drivers of that despite the sharp rise in carbon credit prices in the spot market in Europe ? Start there.
Europe I believe you flagged that there will be a decrease in your carbon costs. In 2022 can you walk into the drivers of that despite the sharp rise in carbon credit prices in the spot market in Europe .
Our therapy.
Speaker 1: Chris, you want to take that one? Okay, yeah, we, it's a couple of different things that are affecting the carbon cost. One, we have a higher free allocation this year because of the production level that we ran at last year. So that's significant off the freer allocation, the free allocation I'm sorry. And we also,
Yes, Chris why don't you take that one okay, yes.
It's a couple of different things that are affecting the carbon cost one we have a higher free allocation. This year because of the production level that we ran at last year. So that's <unk>.
Significant offset freyer allocation the free allocation I'm sorry.
We are also.
Speaker 1: Also, we have been hedging CO2 costs. And so going out and buying CO2 carbon credits in advance also has impacted our average costs. And we also have lower emissions. So that's also impacting overall CO2 costs.
Also we have been hedging <unk> cost and so going out and buying Sidoti.
<unk> carbon credits in advance also has.
Impacted our average costs.
And we also have lower emissions. So that's also impacting the overall <unk> costs.
Okay. Thank you very much.
Speaker 7: Thank you very much. And then over in North America, can you touch on the outlook for annual coal contracts? Any sense of the scale of cost pressure or the year of your increase in price per ton, we can expect for your coal procurement?
And then over in North America can you touch on the outlook for annual coal contracts.
So the scale of cost pressure or the year over increase in price per ton you can expect for your coal procurement.
Yes, I can comment on that yes. This year we've seen.
Speaker 1: Yeah, I can comment on that. Yeah, this year we've seen, you know, extreme pricing increases in the coal market. And we feel like we have a very strong position because of our ability to blend coal. We can acquire coal then that hit the same properties but are a lower...
Extreme price increases in the coal market and we feel like we have very strong position because of our ability to blend coals.
We can.
Prior Colton that hit the same properties.
But are.
Lower.
Speaker 1: of coal because of our coal blending capability. We also have what we consider to be optimal sourcing through a mixture of long-term and short-term contracts. And all of those things together, we believe our pricing is advanced. About a 53% increase versus a market increase of 150% or more.
And of course, because of our coal blending capability. We also have.
What we would consider to be optimal sourcing through a mixture of long term and short term contracts and all of those things together.
We believe our pricing is advantaged about 53% increase versus a market increase of 150% or more.
Thank you very much.
Speaker 4: and we'll not proceed with our next question on the line from the line of Michael Glick with GP Morgan. Go right ahead.
I will now proceed with our next question on the line from the line of Michael Glick with Jpmorgan go right ahead.
Speaker 2: in the morning. Just following the financial side, how should we think about working capital in one queue and moving through the year? And could you speak to the potential for assets that they all served in the year?
Good morning, just on the financial side, how should we think about working capital in <unk> and moving through the year and could you speak to the potential for asset sales during the year.
Speaker 3: So I'm happy to start on working capital. I think in the first quarter, we would expect working capital to baby be a modest source of cash with working capital for the full year, being kind of a modest full year source of cash as well. So I think working capital will be a tailwind to cash flow throughout the course of the year, beginning in the first quarter. And they'd be all handed over to Dave and Terich to talk about in the non-core asset the vestiture opportunity. Congressman Kennedy, I would
So.
I'm happy to start on on working capital I think in the first quarter, we would expect working capital to be a modest source of cash.
With working capital for the full year being kind of a modest full year source of cash as well. So I think working capital will be will be a tailwind to cash flow throughout the course of the year beginning in the first quarter and maybe I'll hand, it over to David to rich to talk about EMEA noncore asset divestiture opportunities.
Speaker 2: that same point there. I mean, this cash conversion cycle and Chris, he spends a bunch of time every week with our team on making sure we continue to have the leading cash conversion cycle. Now, as far as the non-core asset sales, we've, as you recall, we had transdare this last year. We have a whole portfolio of things that we look at from time to time in Richmond.
That same point there I mean, this cash conversion cycle and Kristi you spent a bunch of time every week with her team on.
Making sure we continue to have the leading cash conversion.
Cycle.
Now as far as the noncore asset sales.
As you recall, we had transtar. This last year, we have a whole portfolio of things that we look at it from a from.
From time to time and rich if you could.
Speaker 3: Give us an update. Yeah, thanks, thanks Dave. So.
Give us an update Jeff Thanks, Dave So.
Speaker 3: As Dave said, we do have real estate and other non-core assets and we are continually looking at those to see whether they do or do not fit within the best for all strategy. I'm getting to any specifics obviously, but they're always
As Dave said, we do have real estate and other noncore assets and we are continually looking at those.
To see whether they do or do not fit within the bus for all strategy.
Get into any specifics, obviously, but they're always.
Speaker 3: processes that we're looking at, you know, as we say.
The processes that we're looking at.
As we say everything is for sale at the right price, we get inquiries all the time for some of our assets and.
Speaker 5: Everything's for sale at the right price. We get inquiries all the time for some of our assets and
Speaker 5: I think what I would say is we're not afraid to transact when it makes sense as Dave said.
I think what I would say is we're not afraid to transact when it makes sense as Dave said.
Speaker 5: Over the past couple of years we've done the deals with Transstar. We did the Steal Co-Option.
Over the past couple of years, we've done the deals with Transtar, we did the stelco option.
Speaker 5: in our Minnesota 4. We announced the Keystone Industrial Report Complex Real Estate Transaction. And so I think you should just assume that, you know, we continue to look at those kinds of opportunities going forward on a regular basis.
Our Minnesota or we.
We announced the Keystone industrial Port complex real estate transaction and so I think you should just assume that we continue to look at those kinds of opportunities going forward on a regular basis.
Speaker 5: And then on demand, I get the near term noise on the hot band and pop inside, but I'd love to get more color just on what you've seen in recent weeks on the automotive side.
And then on demand I get the near term noise on the heartburn pump inside.
Love to get more color just on what you've seen in recent weeks on the automotive side.
Speaker 2: What we, on the auto-motivision side, our folks report that there's more inquiries and I'd say more optimism as we go ahead. Obviously, they got the supply chain issues that have been there for a while, but the thing that's amazing with auto is just unfilial and there's the inventories are so low.
Well.
On the automotive side, our folks who report that there's more inquiries and I'd say more optimism as we go ahead, obviously, you've got the supply chain issues that have been there for a while but the thing is it's amazing with auto is just.
Unfold and and others the inventories are so low and it's.
Speaker 2: And it's, I mean, it's just a matter, it's not, I think, if it's when.
It's just it's just a matter it's not I think if it's when.
Speaker 2: mean that people are wanting to buy cars and uh... uh... there's a lot of money in focus pocket says we talked about the savings rates so we're encouraged about where we are again softness the first quarter but i think it's it's gonna come back and you did all these rift these things kind of swirling around right now with the fed and the rate increases we have to remember some of these things are just noise you know wasn't that long ago where the fed said they weren't going to take rates up until you know twenty twenty four right now we're here in the four times you know one and then things for sure is that it's rare that what they say ends up being what happens because they are nimble
People are wanting to buy cars and.
There's a lot of money in folks' pockets as we talked about the savings rates. So we're encouraged about where we are against softness in the first quarter, but I think it's going to come back to all these risks these things kind of swirling around right now with the fed and the rate increases we have to remember some of these things are just noise and it wasn't that long ago, where the fed said they weren't going.
Take rates up until.
2024, right now and we are here in the four times you know one thing is for sure is that it's rare that what they say ends up being what happens because they are nimble and they are going to watch what's going on here. So a lot depends on some of those actions that are being taken but again, we're optimistic in the auto guys are cleaning up their supply chain and while it.
Speaker 2: and they're going to watch what's going on here. So a lot depends on some of those actions that are being taken. But again, we're optimistic. I mean, the auto guys are cleaning up their supply chain. And while it won't be probably completed here with the chips and things like that, it's the demand is so strong that...
It won't be probably completed here with the chips and things like that it's.
The demand is so strong that.
Speaker 2: I think, again, it's not a matter of if, but when, and we'll participate greatly.
I think it shows.
Again, it's not a matter of if.
And we will participate greatly in that.
Thank you very much.
Speaker 4: Oh, get to our next question on the line from Carl Blender, Gov. And sax. Go right ahead.
Well go to our next questioner on the line from Karl Blunden Goldman Sachs go right ahead.
Speaker 7: Thank you, Morning. Thanks for the time. Just interested in the capital allocation updates that you provided around the 3 to 3.5 ton leverage target. Interested in your thoughts on how you arrived at that and any field price assumptions that we should bake in for that target? What I'm coming from here is, when you think about your EBITDA floor, going forward with the asset improvements you've made, that's...
Hi, good morning, Thanks for the time.
Interested in the capital allocation updates that you provided around the 3% to three five times leverage target.
And your thoughts on how you arrived at that.
Any steel price assumptions that we should think in for that target.
Where I'm coming from here is.
So when you think about your EBITDA floor going forward, yes. It improvements we've made that's significantly.
Speaker 8: think significantly higher than it was in prior cycles. So the potential that implies a bit more depth for the business as you make this transition. Interested any thoughts there.
Significantly higher than it was in prior cycles.
Potentially that implies a bit more depth.
For the business as you make this transition.
Interested any thoughts there thanks.
Speaker 2: Well, thanks for the question. You can imagine we put a lot of time in on thinking through this.
So thanks for the question and you can imagine we put a lot of time in on thinking through this.
Speaker 2: how to better reward stockholders and provide more certainty as to how we're thinking about this. So, you know, there's a whole lot of research and study that goes into each one of these lines on that, that capital allocation with the three to three and a half leverage ratio as an, as an important one, right? Because we are, we are a cyclical business and you ask how, how do we think about, you know, the, the through, through cycle number.
How to better reward stockholders and provide more certainty as to how we're thinking about this so.
There's a whole lot of research and study that goes into each one of these these lines on that capital allocation with the three to three five leverage ratio.
As an important one because we are we are a cyclical business and you asked how do we think about the through cycle number.
Speaker 2: but we do our modeling. And while we get, of course, input from rating agencies, banks and other folks to help us hone in on all these things. But as you look through the through cycle, we looked at the average of steel prices in a very conservative basis, which was something like $616.
We do our modeling and while we get of course input from rating agencies banks and others other folks to help us hone in on all of these things, but as you look through the through cycle. We looked at the last at the average of steel prices in a very conservative basis, which was something like 616.
Dollar.
Speaker 2: I personally don't think it's going to go that low for a whole host of reasons we could get into an longer discussion, but we try to look at things in a conservative way so that we have some optimism to manage the flows through this. And so when we look at the strength of the balance, we think that's a good level for us to get through full cycle. And then as far as the investments that we've already identified, many Mail 2, the gas bloom.
I personally don't think it's going to go that low for a whole host of reasons, we could get in 201.
A longer discussion, but we try to look at things in a conservative way. So that we have some optimism but to manage the flows through this and.
So when we look at the strength of the balance sheet. We think that's a good level for us to get through a full cycle and then as far as the.
The investments that we've already identified many mill to the galvanizing the end.
All of those things are identified and we're going to get through those and then if there is there is other opportunities at 15%, we can pick and choose on those as we go forward, but we don't have anything else that we see where we're that we're ready to talk about to announce that we have to raise money or get additional debt.
Down executing this best for all strategy and making sure that.
When you are flushed with cash and the obligation is and when Youre confident that where you are the obligation is to return to stockholders and thats, what that additional $500 million. So theres a lot of modeling that went through all of this we tried to two <unk>.
Speaker 9: and where you are, the obligation is to return to stockholders and that's what that additional $500 million is. So there's a lot of modeling that went through all of this and we tried to condense it down to its simplest form that we think should be able to resonate with you guys as you do your analysis and also the folks that are buying our shares. And we hope people see that we're spending a lot more time on that and rewarding stockholders more. Kevin, do you have something to add? I think the only thing about Ad Dave and Carl to fall up on your question is, you know, in the near term there's probably some opportunities to further repay debt. You know, as you know, there's some debt within the big river capital structure that we could chip away at on an annual basis. And we'll look to do that obviously as it makes sense. You know, if you're point about increasing debt, as Dave mentioned, really something we're not going to be focused on in any material way in the near term throughout the execution horizon. As you've seen us doing the past though, we do like to look at projects specific financing that's long dated costs. To the extent that may be complimentary to any of the projects.
Condense it down to its simplest form that we think should be able to resonate with you guys. As you do your analysis and also the folks that are.
Buying our shares and we hope hope people see that we're spending a lot more time on that and rewarding our stockholders more Kevin do you have some debt I think the only thing I would add Dave and Carl follow up on your question is getting in the near term, there's probably some opportunities to further repay debt.
Speaker 9: As you know, there's some debt within the big river capital structure that we could chip away at on an annual basis. And we'll look to do that obviously as it makes sense.
As you know and that was in the Big River capital structure that we can chip away at on an annual basis, and we will look to do that obviously as it as it makes sense to your point about increasing debt.
Speaker 9: You know, if you're point about increasing debt, as Dave mentioned, really something we're not going to be focused on in any material way in the near term throughout the execution horizon. As you've seen us doing the past though, we do like to look at project specific financing that's long dated.
As Dave mentioned really something we're not going to be focused on in any material way.
In the near term throughout the execution horizon.
As you've seen us do in the past, though we do like to look at project specific financing is elongated.
Speaker 9: cost, and to the extent that may be complementary to any of the projects that we're pursuing, particularly the three strategic projects that will generate $850 million of incremental through cycle EBITDA, you know, beginning in 2024 and ramping in 2026. Those could make sense, but the goal is certainly not.
And to the extent that may be complementary to any of the projects that we're pursuing particularly the three strategic projects that will generate $850 million of incremental through cycle EBITDA beginning of 2024 and ramping in 2026 dose could make sense, but the goal is certainly not.
Speaker 9: From the balance sheet strength, we've been able to deliver throughout 2021 and we want to maintain the strength that we've worked so hard to build over the last 12 months.
From the balance sheet strength, we've been able to deliver throughout 2021, and we want to we want to maintain.
The strength that we've worked so hard to build over the last 12 months.
Speaker 8: I feel very helpful in the case of it made for the higher-steel price floor and well-moded cabin. You're anticipating my follow-up about preferential if you will financing at the additional mill at Big River because you do have really good terms on some of your bonds there. Thanks very much for the time. Appreciate it. Thanks.
So very helpful. In that case in may for the higher steel price floor, and well noted Kevin you anticipated my follow up about.
Preferential if you will financing.
The additional no bigger because you do have.
Really good terms on some of your bonds. There. Thanks very much for the time I appreciate it.
Thanks Dara.
Thank you very much.
Our next question on the line.
Speaker 4: Here's our next question on the line. So I'm Tinnab Tanner with Wolf Research. Go right ahead.
Timna Tanners with Wolfe Research go right ahead.
Speaker 6: Yeah, hey, good morning. I wanted to ask first question about Europe . I had in my notes, and this could be old, five million tons of stated capacity. I know last year we did around 4.3. And guidance to 4.3 is the high end, it seemed a little light, so I was wanting for some color on that. And then to understand the 80 million favorable change in purchase CO2 credit cost, is that like, through the year or is that lumpy in terms of realization?
Yeah, Hey, good morning, I wanted to ask first question about Europe .
I had in my notes and this could be <unk> 5 million tons of stated capacity I know last year you did.
<unk> three <unk> guidance of $4 three is the high end seemed a little light I was wanting for some color on that and then to understand the 80 million favorable change in purchase to credit cost is that through the year or is that lumpy in terms of utilization.
I mean, I think the $80 million on the credit card credit cost and maybe you can just assume is kind of spread out throughout the year I'll, probably no particular reason why it would be particularly lumpy.
Speaker 9: I mean, I think the, the million on the credit cost to me, you can just assume it's kind of spread out throughout the year. I probably know a particular reason why I'd be particularly lumpy in any given quarter.
In any given quarter.
Speaker 9: You know, 5 million tons of stated capacity at USSK is kind of the nameplate capacity. But as you know, like, you know, targeted utilization rate for an integrated facility, you know, think about it somewhere in the kind of 80% range on maybe a little bit higher at USSK. So I think that we feel like demand and shipments there are going to be quite strong and continue to be strong in 2022. So really.
5 million tons of data capacity at U S. S. K, it's kind of a nameplate capacity, but as you know like targeted utilization rate for an integrated facility. So think about it somewhere in the kind of 80%, 80% range on maybe a little bit higher at USS K. So I think that we feel like demand and shipments that are going to be quite strong and continues to be strong.
In 2022, so really.
Speaker 9: You know, no reason for any different to shipment volume. We take a pleated outage in the month of January . So that's the way down shipment's a bit in the near term.
Tom.
No reason for any different shipment volume, we did complete an outage in the month of January .
That could weigh down shipments a bit in the near term.
Yeah.
Speaker 10: Okay, thank you. And then my second question is just thinking commercially about the first quarter versus the fourth quarter. I know you had said that the fourth quarter volumes were a little light because you didn't want to chase lower prices, but the prices still are even lower than they were in the fourth quarter. So I'm just trying to understand how we should think about.
Okay. Thank you and then my second question is just thinking commercially about the first quarter versus the fourth quarter.
He said that the fourth quarter volumes were a little light because you didn't want to chase lower prices, but.
Stellar are even lower than they were in the fourthquarter. So I'm just trying to understand how we should think about shipments relative to market conditions.
Speaker 10: shipments relative to market conditions. Like, do you think that the
Do you think that the destocking.
Speaker 10: Destocking is complete already and that that will help first quarter volumes or how do we think about volumes quarter of a quarter in light of the current in a lower field prices than flat row.
Destocking is complete already.
I will hop first quarter volumes are how do we think about volumes quarter over quarter in light of the client.
Lower steel prices and flat rolled.
Yes, I think we could we would expect to see shipment slight.
Speaker 9: Yeah, I think we would expect to see shipments slightly up in North American flower, old quarter over quarter, with the first quarter being higher than the fourth. I think we could see volumes in our many most segments, maybe take a mod a step down, and then relatively flat in Europe and in tubular. So, you know, I think we're navigating the domestic sheet market, the best we can, and we would expect shipments to then accelerate in the second quarter for to get through our full year guided targets.
Slightly up in North American flat rolled quarter over quarter with the first quarter being higher than the fourth I think we could see volumes in our mini mill segment, maybe take a modest step down in.
Relatively flat in Europe and in tubular so.
I think we're navigating the domestic sheet market.
The best we can and we would expect shipments to then accelerate in the second quarter for guests who are our full year guidance targets.
Got you okay. Thank you very much.
Speaker 4: Thanks very much.
Thank you very much.
Speaker 4: Now I will now turn the car back to your fuel field, day bird, the cold winter.
I will now turn the call back Congrats Bill Burke for closing remarks.
Speaker 2: Thank you for joining me. Call this morning. We are just beginning to show the potential of our best for all strategy and look forward to proving the power of the strategy over the coming quarters and years. We know that U.S. Steel has a light strategy for the long-term future, but we know that to achieve best for all, we need the best from all. And that is strong support from the United States government to support a sustainable steel industry to trade enforcement and support for innovative.
Thank you for joining our call. This morning, we are just beginning to show the potential of our best for all strategy and look forward to proving the power of this strategy over the coming quarters and years, we know that U S. Steel has the right strategy for the long term future, but we know that to achieve best for all we need.
The best from all and that includes strong support from the United States government to support a sustainable steel industry to trade enforcement and support for innovative.
Speaker 2: Innovation and decarbonization.
Innovation and de Carbonization Ust.
Speaker 2: To our Sheila Stewell and Big River Stewell employees, thank you for the record books. You didn't get distracted by a record steel prices. Instead, you stepped up your game to deliver record levels of quality and reliability to amazing to lie at our customers. And we're so pleased to reward you with record, profit sharing, and incentive pay.
You are still in Big River steel employees. Thank you for delivery year for the record books.
You didn't get distracted by a record steel prices. Instead, you stepped up your game to deliver record levels of quality and reliability to amaze and delight our customers and we're so pleased to reward you with record profit sharing and incentive pay.
Speaker 3: And you did it all by continuing to work safely for yourselves and your colleagues.
And you did it all by continuing to work safely for yourselves and your colleagues.
Speaker 2: But we're never satisfied until everyone who enters our facility returns home safely.
But we're never satisfied until everyone, who enters our facility returns home safely.
Speaker 5: We truly have a world-class team at US Deal, and it's great to see it increasingly recognized. Earlier this year, our compliance team was recognized as a best compliance and ethics program by corporate secretary. And just yesterday, we awarded a perfect 100 score on the 2022 corporate equality index for a third year in a row, recognizing US Deal as a best place to work for LGBTQ plus equality.
We truly have a world class team at USD, and it's great to see it increasingly recognized earlier this year. Our compliance team was recognized as a best compliance and ethics program by corporate Secretary and just yesterday, we were awarded a perfect 100 score on the 2022 corporate equality index for a third year in a row.
Recognizing U S deal as a best place to work for LGBTQ plus the quality. We are pleased to work with such talented and diverse individuals and are fostering an inclusive environment for all our employees to thrive and of course to our customers. Your challenges are what drive and inform our.
Speaker 2: We are pleased to work with such talented and diverse individuals and are fostering an inclusive environment.
Strategy, we are creating a U S deal that we part of a greener world.
Speaker 5: and part of your solutions to meet your own decarbonization challenges. Thank you for your continued partnership.
And part of your solutions to meet your own de Carbonization challenges. Thank you for your continued partnership.
Speaker 2: in pursuit of our shared customer planet Earth. Now let's get back to work.
In pursuit of our shared customer planet Earth now lets get back to work.
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Speaker 4: Thank you very much. And I was going to call for today. We thank you for your participation. I feel different. Have a good rest of the day.
Thank you very much.
The call for today, we thank you for your participation.
Have a good rest of the day one.
Speaker 11: Then
Right.
Uh huh.
Sure.
Yes.
Yes.
Yes.
Yes.
Yes.