Q1 2022 United States Steel Corp Earnings Call
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Okay.
Good morning, everyone and welcome to United States Steel Corporation's first quarter 2022 earnings conference call and webcast.
Today's call is being recorded I now hand, the call over to Kevin Lewis, Vice President of Investor Relations and corporate credit.
Okay. Thank you Tommy.
Morning, and thank you for joining our first quarter 2022 earnings call joining.
Joining me on today's call is U S steel president and CEO , Dave Burritt.
Senior Vice President and CFO , Christie briefs, and senior Vice President and Chief strategy, and sustainability Officer Rich Fruehauf.
This morning, we posted slides to accompany today's prepared remarks, the link and slides for today's call can be found on the U S steel investor page.
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Before we start let me remind you that some information provided during this call may include forward looking statements that are based on a certain on certain assumptions.
And are subject to a number of risks and uncertainties as described in our SEC filings and.
And 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 them as actual events unfold.
I would now like to turn the conference call over to U S steel President and CEO , Dave Burritt, who will begin on slide four.
Thank you Kevin and thank you everyone for your interest in USD.
Thanks for your time. This morning, we appreciate your continued support of our company with each quarter, we demonstrate our progress and it is a pleasure to provide an update on yet another quarter of record setting performance.
But first and foremost we set a record this quarter for safety performance.
So far this year, our safety is better than the record set in 2021, which was better than the record set in 2020, which was better than the record set in 2019.
The drumbeat of continuous improvement demonstrates our role as the industry leader a position we take very seriously at U S steel where safety is always first.
Thank you to the U S steel team for continuing to work safely. We appreciate you. We all know when safety is great operations run great. Your hard work and dedication are at the center of our success.
Let's take a moment to recognize our colleagues in U S steel Europe for being safety champions and embodying our steel principles.
They exemplify our code of conduct the human tragedy in Ukraine has hit very close to home in eastern Slovakia and on behalf of the entire leadership team at USD yield we are grateful for the support and aid you'd offer you've offered to your neighbors and toward the resiliency.
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Looking across the enterprise, we expect 2022 to be another exceptionally strong year for USD.
We delivered our best ever first quarter and expect to do it again by delivering our best ever second quarter expecting to beat last year's record second quarter EBITDA.
Over the past 12 months U S steel has delivered EBITDA of six <unk>.
Third a $1 billion and $3 7 billion.
Our free cash flow.
Enablers of our best for all strategy and our balanced capital allocation framework best.
<unk> has us well positioned to continue our transition to a less capital in carbon intensive business, while becoming the best yield competitor.
Some of the best we're combining highly capable integrated facilities.
Low cost and highly sophisticated mini mills.
And our unique low cost iron ore to create an economic engine that best serves our customers best supports our employees and of course best reward our stockholders.
And to become the best for all we need burst from all which includes from our colleagues customers communities and countries, where we live and work specifically, we count on the continued strong support of the U S government to ensure a level playing field.
We need strong trade enforcement to answer the administration's call to action to address climate change.
We know the administration knows the role steel plays in our National and economic security and the opportunity we have to continue to advance actions that make steel more sustainable.
We have been pleased with the work of our Commerce Secretary and U S. Trade representative we expect their strong leadership and enforcement to continue.
Our customers employees and stockholders are counting on it.
Our stakeholders are also counting on the best from us to continue to deliver by expanding our competitive advantages and lowest cost iron ore and North America Mini mill steel, making and best in class, finishing while executing our balanced capital allocation strategy.
The work we have done on the balance sheet and our bullish outlook for 2022 puts us in.
A great position to deliver on our solution to expand our competitive advantages, while maintaining a balanced capital allocation strategy, including the opportunity to significantly increase direct returns to stockholders.
We like to say when we do well you do well and I am pleased with our ability to continue to reward not only customers with great steel solutions and employees with a record profit sharing but also stockholders with more direct returns from stock buybacks.
Now more than ever delivering on our best for all strategy is our path forward.
Let's turn to slide five where I will introduce the key messages for today's call.
First we achieved record first quarter performance and as mentioned, we expect record best second quarter performance too.
If we deliver expected second quarter performance, we will have executed the best 12 months of financial performance in our company's history.
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As I mentioned earlier in my remarks, we had strong execution across the enterprise and are assembling a portfolio of differentiated assets to deliver profitable steel solutions for people and planet.
Finally, we are returning capital to stockholders in line with our capital allocation framework.
Later, we will take a few moments to summarize our competitive position and unique customer value proposition in each segment.
And lastly, as we continue to execute the transformation of our business model demonstrate the resiliency of our strategy.
And maintain the financial strength that will allow us to complete our strategic investments on time and on budget.
We continue to believe the market is significantly discounting our strategic position and valuation, making stock repurchases. A continued source of tremendous long term value creation.
Moving to our financial results on slide six.
The first quarter presented challenges to our industry and our business, including normal seasonal impacts amplified by volatility and supply chain disruptions.
And at USD, a review each challenge as an opportunity and we delivered record first quarter net earnings record first quarter, adjusted EBITDA and all time record liquidity.
And most importantly, we translated record earnings into strong free cash flow generation over $400 million of free cash flow in the quarter.
Our strong free cash flow positioned us at quarter end with $2 $9 billion in cash to support our best for all investments and our balanced approach to capital allocation.
Looking ahead to the second quarter, we expect each of our segments to contribute to higher EBITDA generation in the second quarter.
Given the anticipated upward trajectory of our business I'll spend a few minutes on each of our operating segments outlined on slide seven to highlight.
How we are differentiating our business segments by leveraging our unique capabilities and how we're using U S steel advantages to meet our customers' needs.
Let's start with North American flat rolled segment on slide eight.
Our North American flat rolled segment is a critical element of our best for all strategy as we continue to leverage our low cost iron ore.
And our integrated steelmaking assets to serve a diverse mix of customers demanding increasingly differentiated grades of steel we offer our customers steel that is mined melted and made in the USA, our low cost iron ore is a truly sustainable competitive.
<unk> the importance of which has been amplified by the recent disruptions in the global metallics supply chain, our structurally long iron ore position as a source of long term value creation as we continue to expand our competitive advantage to increasingly benefit our mini mill steel making operations.
We announced the first step in our metallic strategy in February with the construction of a pig machine at our Gary works facility, our investment in pig iron capability. It Gary is a capital light investment that unlocks significant benefits across the enterprise first it will utilize excess blast furnace.
Capacity at Gary works to produce pig iron without sacrificing steelmaking capability.
Jeremy works is long iron, which means the facility can produce more liquid iron and the steel shop can consume to make steel.
By installing a pig iron machine, we can increase blast furnace utilization and create efficiencies within our flat rolled segment.
And second.
This pig iron investment with expected startup in early 2023 will supply up to 50% of Big River Steel's or based metallics needs, meaning it could replace up to 50% of third party purchases of pig iron.
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U S steel has a unique opportunity to translate ownership of a low cost iron ore into feedstock foreign expanding fleet of electric arc furnaces, we continue to evaluate additional opportunities to further increase our self sufficiency and unlock additional sources.
Of differentiation.
Our integrated steelmaking footprint is also being reshaped, we've made difficult, but necessary decisions to reposition our integrated facilities by moving our blast furnace footprint down the cost curve and enhancing our capabilities.
Our enhanced capabilities include our best in class, finishing lines to produce the high end steels, our customers, particularly automotive and packaging customers demand when only the best will do.
To Oems have historically had the biggest need for advanced high strength grades of steel, but our business and commercial development efforts are rapidly identifying other end markets that benefit from advanced high strength steels.
Our customers tell us time and time again that we're the leader in advanced high strength steels, and we continue to grow share and while supply chains experienced challenges last year, we shipped more advanced high strength steel in the first quarter of 2020 due than we did in the first quarter a year ago.
The progress we've made in our North American flat rolled segment has resulted in improved earnings power and resiliency and.
In the first quarter, we realized relatively flat average selling prices versus the fourth quarter of last year. Despite a decrease in spot prices up 34% our contract positioning allowed us to generate first quarter EBITDA that was over two times higher than last year's first quarter performance and results.
And EBITDA margins of over 20%.
Our mini mill segment on Slide nine which includes Big River steel is the industry leader in electric arc furnace steel production, yet again Big River steel delivered industry, leading financial performance first quarter EBITDA margins for the segment were 38% or 900 basis points better than the best.
Any mill competition.
Big River Steel's unmatched process and product innovation combined with its ability to produce sustainable steel with up to 75% fewer greenhouse gas emissions than traditional integrated steelmaking makes big River steel a platform for growth with customers, we listen to our.
Customers over a year ago in regards to electrical steel and through this we have demonstrated our commitment to serving the broader electrical steel market. It is a customer that drives our actions and informed our investment in non grain oriented oriented or NGL electrical steel.
We are not skeptical about moving forward faster and don't need to wait to see what automotive customers. We will do our relationships with Oems have is eager and strongly convinced that the thinner and wider NGL electrical steels that will be made at big River steel will capture customer.
Or is the demand because we know where they are headed.
Customers are already reserving their time on the new World Class NGL line construction of which is on time and on budget for a third quarter 2023 startup. We're also expanding our presence in value add galvo loom and galvanize capabilities again informed by our.
<unk> to meet the growing demand expected in construction appliance and automotive. This investment is also on budget and on time for our second quarter 2024 startup.
Given our well timed acquisition of Big River steel last year and the rapid success, we've driven together we broke ground earlier last quarter on mini mill number two co located at the existing campus of Big River steel.
Big River steel plus minimum number two or what we call Big River steel works.
Combined is expected to deliver $1 $3 billion of annual through cycle EBITDA by 2026 and will be capable of producing six 3 million tons of raw steel.
And we've always said, it's not about getting bigger it's about getting better investing in capabilities is what our customers need and what helps us to improve our through cycle EBITDA performance increase our free cash flow generation.
And lower our capital and carbon intensity.
We know what our customers want.
High quality deals made sustainably to help them meet their own decarbonization targets. That's why we're so pleased when big River steel achieved responsible steel facility certification, the first and only North American steelmaking facility to do so customers want rigorous.
Standards that have been independently verified to informed choices in how they partner with suppliers and responsible steel provides a common platform across the steel value chain.
The responsible steel standard is based on 12 principles with a wide range of criteria covering core elements in environmental social and governance or ESG responsibility.
This designation affirms our leadership role in delivering sustainable products and a process for our customers and our commitment to ESG.
We plan to seek responsible steel facility certification for mini mill number too as well in time for its planned startup in 2024.
As an innovator steel producer.
Big River steel is setting a new gold standard for North America.
Now, let's talk about our European segment on Slide 10, the gold standard for integrated steel production in Eastern Europe .
Over the past several months our teams in Slovakia and in the United States have worked incredibly hard to mitigate the impact on our raw material supply chain caused by the Russian invasion of Ukraine, we are leveraging new and existing relationships to secure supply of iron ore coal and other.
Raul materials, while continuing to profitably meet customer demand.
Despite the continuing conflict in Ukraine, our operations are running at high levels of utilization and remain a critical manufacturer of steel and a trusted supplier to customers in Slovakia, Czech Republic, Poland, Hungary, and Western Europe , we will.
Continue to support the <unk> economy and communities by continuing to operate to serve those communities.
Through the cycle, our Slovak operations have demonstrated consistent earnings and free cash flow and their performance in the first quarter was the third best quarter in their history.
Finally on our tubular segment on slide 11.
Our tubular segment has endured several years of difficult market conditions, but I'm. So pleased with their ability to persevere. The team is working diligent.
Through the downturn to improve their cost position.
Fight unfairly traded tubular imports and enhance their product offerings to better positioned once the recovery came.
While that time is now in our tubular segment is profitably serving the U S energy market resurgence.
The EAA up at Fairfield commissioned in 2020 is allowing for more efficient production by controlling the process from start to finish.
This allows for faster response time to for customers instead of relying on third parties to provide the substrate necessary for seamless pipe production.
In sourced rounds production plus proprietary connections, including API semi premium and premium connections creates a comprehensive suite of solutions for customers.
In the first quarter, the tubular segment doubled their EBITDA performance from the prior quarter and we expect to demonstrate continued improvement in the second quarter.
I've said, it before and I'll say it again this isn't your great great Grandpappy as USDA.
Moving to capital allocation on slide 12.
Our capital allocation priorities are clearly on track.
The balance sheet remains strong and aligned with our through cycle adjusted debt to EBITDA objectives.
And our ending cash balance remains more than our next 12 months capex, ensuring our best well strategic investments are fully funded.
With our capital allocation objectives met we expect to meaningfully increase our stock buybacks in the second quarter. We currently.
We expect to return cash in excess of our currently projected second quarter free cash flow generation and we will continue to take advantage of our dislocated valuation.
It is worth repeating when we do well you do well and we're doing extremely well our best days are ahead.
We know where we're headed and we are assembling a portfolio of low cost highly capable assets and expanding our unique competitive advantages.
Christie will now walk through our first quarter performance and expectations for the second quarter.
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Thank you Dave I'll begin on slide 13.
In the first quarter was $5 $2 billion, which supported first quarter adjusted EBITDA of $133 7 billion.
Profitable first quarter ever enterprise EBITDA margins were 26% and adjusted earnings per diluted share was $3 five.
Free cash flow for the first quarter was $406 million, including an investment in working capital of $462 million primarily related to inventory.
At the segment level flat rolled we reported EBITDA of $636 million or 21% EBITDA margins.
Fixed price contracts reset significantly higher for 2022 as reflected in our year over year average selling price increase more than offsetting the typical first quarter seasonal headwinds from our iron ore operations.
For the remainder of the year, our own low cost iron ore and annually contracted coal have us well positioned in today's elevated raw material cost environment.
Our flat rolled operations continued to perform exceptionally well.
On pace for another year of record quality and reliability performance in 2022.
And our mini mill segment, we reported EBITDA of $318 million and EBITDA margins of 38% representing another quarter of industry, leading mini mill margin performance.
In Europe , our Slovakian operations delivered EBITDA of 287 million more than double last year's first quarter performance and as Dave mentioned, the third best ever quarter.
And then tubular we more than doubled last quarter's performance to generate EBITDA of $89 million largely due to pricing uplift and the oce TG market, New trade cases on OS atg imports and management actions over the past several years <unk> the cost structure.
Spanned the high margin connections business.
Our first quarter performance is just the start of what is expected to be another exceptional year for U S. Steel in the second quarter, our flat rolled segment should see the largest increase in our portfolio in EBITDA versus the first quarter.
Higher spot selling prices and increased demand fixed cost for iron ore and coal and the absence of iron ore mining seasonality should all contribute to meaningful quarter over quarter EBITDA improvement.
Our mini mill segment is also expected to capture higher volumes and higher selling prices.
Higher raw material costs to largely offset the expected commercial tailwind.
In Europe continued healthy demand and higher prices are expected to offset higher raw material costs, particularly for iron ore and coal coming from alternate supply routes.
We currently expect second quarter EBITDA to be the all time second best quarter for our Slovak operations.
And then our tubular segment, we expect continued financial improvement primarily from higher selling prices stronger trade enforcement and the continued benefit of structural cost improvements. This will only be offset partially by higher scrap costs for eas.
In aggregate, we currently expect higher second quarter, adjusted EBITDA versus the first quarter and record best second quarter performance.
Back to you.
Thanks, Christy before we open the line for questions. Let me spend a few minutes on slide 14.
We are executing to reposition our business for the future.
In executing our best for all strategy is key to delivering on that opportunity for our customers for our colleagues for our stockholders and for the communities, where we live and work we are progressing on key elements of our strategy on time and on budget projects, including expanding our.
Ive advantages and low cost iron ore mini mill steel, making and best in class finishing capabilities.
When we execute our announced strategic investments, we will deliver approximately $880 million of additional annual through cycle EBITDA with benefits beginning in 2023, when our pig iron investment at Gary works comes online.
We are seizing the moment and building momentum.
By day and have a strong team in place to deliver on our objectives.
Our strategy is the right one and 2021 was just the first step in our pursuit of best.
With that let's get into Q&A.
Okay. Thank you, Dave the global pandemic had a profound impact on how we engage with our key stakeholders over the last two years.
At U S steel, we've embraced distributed work to get closer to our customers and increase the productivity satisfaction and retention of our employees.
We've never been better connected as an organization more deeply involved with our customers are more focused on finding new pools of talent to join our organization.
It is in that spirit and to ensure we create new ways to engage with stockholders that we have partnered with say technologies to directly receive questions from our investors for today's call.
Using the same technology platform investors were able to submit and up both questions over the past week.
We have seen strong support and engagement of the platform and received over 50 Kris submitted questions.
For this morning's call we have selected two top questions to kick off our Q&A session.
So, Dave Christy and rich I'll get US started with our first question. We received several investor questions about dividends and stock buybacks, including from Scott a JSP Luis Al and Stephen S. So Dave can you get us started by sharing your thoughts on how we're thinking about our quarterly dividend and any additional.
Comments on stock buybacks.
Sure Kevin Thanks, that's a great question.
Just make one quick comment before we jump in.
I really appreciate the strong level of engagement, we saw with this new Q&A platform. So I applaud you for looking for new ways to engage with stockholders I think it's a really interesting tool.
And we'll just see how see how it goes and get feedback from others as we move forward.
So so far so good and really good questions over the past week.
Now, let's get back to the question on capital allocation. This is a really important topic. One we spend a lot of time thinking about investors Trust us with their capital and we want to reward everyone, who has put their confidence in USD.
Obviously, the choices, we make about dividends and buybacks are so important to long term value creation.
You'll recall on the dividend.
As planned we reinstated the dividend at <unk> and we plan to maintain the <unk> <unk> per share quarterly dividend, but to be clear. This is something we will continue to evaluate and it could be a future opportunity.
This is the power of our best of all for all strategy and we continue to do this.
Well so so.
With our stockholders and future increases to the dividends are something we will continue to consider.
What I think is most exciting is our progress on our stock buyback right now.
No the stock price is too low.
And buybacks are the best way to return capital to stockholders.
And good timing I just received an update that we completed our first 300 million authorization and are beginning our 500 million authorization now.
So as I mentioned in my remarks, we expect the pace of our buybacks to materially increase in the second quarter.
Chris do you have anything else you want add to that.
Well, Thanks, Dave I think you gave a really good summary.
But I would add a couple of points about how we got to where we are.
In the last year all of you have heard us how focus we've been on strengthening our balance sheet and I think what we've done in the last year has truly been remarkable as you know we paid off more than $3 billion of debt. We now have an industry leading.
Net debt.
Leverage ratio and.
0.2 times leverage net leverage so we're very pleased with that.
We also have pushed out our debt maturities, we have 80% that are 2029 or later.
We also have record cash and liquidity and that gives us a lot of confidence as we are.
Executing these strategic investments.
I think you are.
Tenants that you've said several times today, it really summarizes it well when we do well our stockholder holders do well I think that kind of says it.
Okay, Great Alright, Thank you, Dave and thank you Christy.
And final question from <unk> technologies that will address here. This morning is related to U S steel's ability to benefit from the <unk> administration's infrastructure Bill this.
There was a question submitted both from Elizabeth and Mena. So Dave do you want to get us started with our opportunity.
The opportunity provided by the infrastructure Bill Yeah. Thanks, Kevin I think it was another really good question.
Not at all surprised it finds its way to the to the top of the list.
I think what the question highlights is how critical U S. Steel is to our country quite literally steel is the backbone of America, our infrastructure, our supply chain and the products. We all use daily to keep our family safe and make progress possible in many ways. We believe it's our.
Our patriotic duty to support our country, whether through infrastructure climate change or against international bad actors.
So we strongly support bipartisan action to invest in American infrastructure, we support the need to develop partnerships and advanced policy that is responsive to climate change and supports the transition of our steelmaking footprint towards a more sustainable future.
To help deliver on our 2030 in 2015 sustainability goals.
We certainly support the administration's continued enforcement of trade policy against those countries not playing on a level playing field and damaging our essential industry, we're pretty passionate about this in.
I guess I could spend a lot more time on this but maybe I'll just pause here and that rich you have anything to add.
Well thanks, Dave.
I fully agree with everything you've outlined.
U S steels, we're uniquely positioned to say that we are mined melted and made in the USA and thats really an important differentiator for us.
The infrastructure build it includes buy American provisions that increased demand specifically for American made steel.
And as you highlighted that's something we've been talking about for years, we're passionate about our ability.
To support our customers in the steel intensive industries that produced the machinery equipment and the vehicles that our economy needs.
And do it with steel that is truly U S steel.
And as a company I don't think this could have come at a better time for us our operations are running exceptionally well, we're setting quality records and reliability records last year and we're on track for this year as well to set new records.
We're also as you highlighted in your opening remarks were advancing our metallics investments that leverage our low cost iron ore in northern Minnesota and the <unk>.
So yes, I think we'd say, we absolutely expect U S steel to be a continued winner as we re shored manufacturing in the United States and increase the regional focus of our supply chain and look we've been talking about that for years and I think now the market is catching up with these advantages that we have so the strategy we are executing its just.
Increasing our position of strength domestically.
We know there are a lot of stakeholders that are counting on our success and we look forward to continuing.
To prove to them that.
First for all is best for our customers our employees and of course, the communities, where we live and work.
Great well, thank you, Dave and thank you rich so with that once again very appreciative of the strong response that we saw from investors through this new technology.
Look forward to the continued engagement and on future calls so with that Tommy.
You could please queue the phone line for questions and just as a reminder, we ask each of you to please limit yourself to one question and a follow up so everyone has the opportunity to task question.
Thank you.
If you'd like to register your question. Please press the one oh by the four on your telephone or three time process does not require.
That's a question that's been asked or I could draw your frustration.
One oh by the <unk>.
And we'll proceed with our first question on the lines from the line of David.
I know with BMO capital markets go right ahead.
Yeah.
Okay, great. Thanks for taking my questions and interesting shifts in the Q&A format, I'm really looking forward to hearing and the types of questions that are selected each quarter with that format that will be interesting.
Just on my questions I have I have two.
And then one follow up first of all my first one is actually a clarification you flagged plans to accelerate buybacks into Q I thought you mentioned you plan to return capital in excess of <unk> 22, free cash flow, but I didn't quite hear that is that the level of buybacks, we should be thinking about in the second quarter. That's my first question.
Yes.
[laughter].
Okay next question.
Follow up.
Europe I wanted to drill down on Europe , I know, Kevin is a little noise in there because ive been asked those questions, but I've been because I've seen the mill I've seen that the rail line that runs directly from I think Ukraine to the mill I believe the mill is essentially I think landlocked and I believe all the iron ore comes directly from Russia.
I think it has a captive thermal coal fired power plant and that thermal coal comes from Russia, I know you've mentioned sourcing materials from other places I Wonder if you could just quantify how much iron ore you're able to source from other places and did I just get those facts correct and if you could give us more detail a sudden essentially on the contingent.
The plan.
And ultimately are you confident that that mill will continue running at maximum utilization rates after the second quarter.
Well thanks for the question, David and we know that's top of mind for investors because it's certainly top of mind for us and Fortunately we have exceptional.
SK team in Slovakia, along with our procurement team that got way out in front of all these possibilities. So that we've been managing that supply chain extraordinary extraordinarily well and so it's.
Far as.
Russia, and Ukraine, and the sourcing of materials theres not so much coming from Russia anymore, we do have iron ore advantaged coming from Ukraine with.
On a rough uninterrupted flow directly into our facility. We've also built.
78 days, if I got the number right something like that of inventory we've been talked about.
With this inventory build is it time for us to start working off some of that inventory but for the.
At the time being we have been building the working capital so that we have.
Enough to make sure that we get through the second quarter, you know speculating beyond the second quarter and what's what's happening with the Ukraine War is always always hard, but I will say that the teams in Slovakia.
Procuring raw materials from alternate sources, including the seaborne market.
And limiting our exposure to the conflict area, while continuing to run the facility to meet.
The customer demand and of course, she is you know structurally shifting our raw material sourcing it's no small feat, but we've secured alternative routes and transportation established new sidestep offload raw materials.
We will continue to maintain daily vigilant. So that we can continue to operate this essential mill are essential for our customers essential for our employees and essential for the community there so encouragingly so far.
<unk> seen the rise in raw material costs.
Certainly we felt that but it's all supported by higher steel prices and I just have to say I'm incredibly.
Billy Grateful for our employees or close to the border and providing support and assistance to refugees and others for this horrific thing thats going on in the Ukraine, but the way. We operate here is we are guided by our steel principles, our code of conduct and we're taking care of that.
Communities, where we live and work. So we're following all the laws and the sanctions to ensure we protect the livelihoods of our colleagues and the people in Slovakia, We've received strong support from both the Slovakian government and the U S Ambassador to keep the mill running and it's a large contributor to the economy.
<unk> largest employer in eastern Slovakia, it's critically important to the region and critically important to us So David I guess.
In a nutshell, it's running well has been running.
Exceptionally well all things considered and we do have alternatives that we'll have to work through if.
Conditions would get worse, but for the time being we have enough inventory.
To see our way through and we feel optimistic here about the second quarter and Christie or something.
I can say I think that contingency planning upfront made all the difference I mean, we're really thorough contingency plans built up inventories that new alternate supply chains.
We leveraged relationships.
Have more port capacity storage, all along the path going into Slovakia.
A lot of advance planning that really put us in a very strong position that started this.
So there you have a David you had a follow up.
Yes, sure. So if I could just hoping with one quick one I appreciate all the additional color on that.
So it sounds like and I don't can you just tell me what exactly is happening there are you trucking in.
Iron ore and thermal coal from different locations is that how this is happening and if so what's the incremental cost.
Of doing that and then secondly, again a follow up after <unk> once that inventory drawdown happens, what's the thought if things stay the way they are.
With regards to utilization rates of that mill.
We have materials coming in on a narrow gauge rail from the west and still wide gauge rail.
The east.
So we still have materials moving in.
Through ports, because as Dave said that we develop the seaborne sources.
Coming in through the ports and then they come in through rail we are expanding our narrow gauge.
Loading capability.
So we have a variety of sources and again a lot of it was that advanced planning before the war actually started.
Thank you very much.
We will proceed for our next question on the line from Seth Rosenfeld from BNP Paribas go right ahead with your question.
Good afternoon. Thanks for taking our question I guess, a follow up please with regard to the European raw materials inflation I believe once last question because I was not very much coming from Russia can you just confirm if theres any procurement of Russ and iron ore coking coal at least in the case of iron ore quicker no almost things on that product from an EU perspective linear.
Subsidies procurement entirely can you just confirm the current.
Data play.
We aren't receiving any more coal from Russia does that has stopped and as Dave said earlier, we follow all sanctions and law. So coal has been completely stopped.
We are getting a little bit of iron ore.
But as we were talking about we really have diversified our sources.
That's very small at this point in time, there is not so much anymore coming in.
Sure.
Okay. Thank you.
Sure.
When I look at the shipment Berkeley production data for efficacy I think this last quarter with the FERC time since 2006, we saw shipments above production with.
Was that a conscious effort to draw down inventory and does it reflect any production disruptions, perhaps tightened raw material situation.
Yes. This is Kevin I would say no no production disruptions for sure I think it just continues to speak to the high level of efficiency of the mill and the continued strong demand that we're seeing across the <unk> region as well as western Europe . So I think just once again representative of our U S. S K facility's ability to be.
Be extremely responsive and resilient to the dynamics that continue to unfold in Europe and as you as you saw very very strong results.
Third best ever quarter, and we expect that momentum to continue into Q2. So you should you should expect some.
Pretty consistent shipment volumes looking into the second quarter for the European segment.
Thank you very much.
And we'll proceed to our next question on the line from the line of Carlos de Alba from Morgan Stanley .
Yes. Thank you very much good morning, everyone a question.
Question is on volumes or shipments from the North American business.
We saw a drop year on year and quarter on quarter, which may be seasonal but.
It was quite below the first quarter.
Last year could you elaborate a little bit of what youre seeing.
End markets and how do you expect the rest of the year.
In terms of your shipments and then if I may also ask.
<unk>.
Yes.
Okay, but these gains.
In the medium mill.
How much how much you have going forward, let me isolate.
Sure.
We use the impact of higher.
Cause potentially.
Neil.
Sure. So so carlos on kind of Q1 shipments.
You mentioned kind of seasonal weakness I think that's absolutely the right way to think about the first quarter of this year, you really saw that across the our domestic.
Steel book Order book.
But as we as we mentioned I think during the time of our guidance, we'd seen order entry rates.
Pick up now towards the towards the end of the first quarter.
And <unk>.
Continue to find ourselves an ability where we are I think.
Responding well to to where demand is manifesting itself across our balanced portfolio of products. So now automotive demand remains consistent.
Not back to the levels that we had seen kind of pre disruption.
I think given our diversified end market exposure.
Construction service Center Industrials, we've been able to really optimize the mix of products to best serve our customers and to drive the highest levels of.
Earnings and margins across the across the enterprise. So I think it just speaks to our diversification and as I mentioned, our ability to be responsive to customers with.
A great mix of operating assets both on the integrated.
And many more side of the business and then on hedges for for Big River Steel.
I think we have some just natural hedges within our business.
Given how we operate.
And.
I think that you should expect the Big River segment to continue to perform extremely.
Good levels of margin.
Pretty consistent with where they were where they were in the first quarter. So navigating the metallics price increases and certainly looking to increase.
A higher average selling prices in our mini mill segment next quarter as well as significantly higher shipment shipping volumes as well.
Alright, Thank you very much.
A follow up if I could on prices given the dynamics that we have seen with the correction in January and February .
Very strong rebound.
March April and now sort of a stabilization on coming down.
When you put that on top of the reset of the fix.
Rice's fixed price contracts that you have.
You mentioned he is going to significantly increase your realization in 2022.
When do you see.
Dynamics that we saw in January and February really affecting your realized prices more in the third quarter, where potentially you could see on EBITDA decline.
In quarter over quarter prices.
Certainly want to see how all the pricing environment plays out Carlos I think that we are we continue to be strongly convicted that.
Demand, where metallics prices and raw material costs are we.
We could really possible to CEA.
Plateauing effect in and steel prices so.
I think that we'll have to see ultimately how spot prices evolved, but wed expect average selling prices to be up quarter over quarter.
The mini mill segment, and I think you'll really start to see.
Some positive momentum in average selling prices for the flat rolled segment in the second half of the second half of the year.
Thank you very much.
Yeah.
Thank you.
Once again on the phone if you'd like to register any question you May press. The one four by the four on your telephone keypad.
And we'll go to our next questioner on the line.
I'm really tired with Goldman Sachs go right ahead.
Good morning, Dave Christian team. My first question is just around your raw material mix could you. Please share what youre minimill charge mix is currently.
And how has that evolved since in Russia, Ukraine conflict.
And then the Guy Lux Peg machine be ultimately used internally only are you having discussions on selling that to third parties overtime.
Sure. Let me start with your second question first I mean, we I think the Gary the Gary works Peg machine will certainly be used to <unk>.
Vantage.
The U S steel enterprises, and our Big River Minimill operation. So at this point in time.
I think Christine Dave and Rich I'll mentioned during this morning's discussion that is how we are going to unlock value for our business and it's certainly something that we're going to use for the sole benefit of.
Of USD.
Since the crisis has emerged in Russia, and Ukraine, I think Big River team has been extremely responsive to shift their mix of metallics.
Particular, reducing some dependency on pig iron consumption and moving to more.
Are there other Virgin metallic units.
As a result of.
Securing some additional supply so I would say right now we've seen the biggest maybe.
Some decreases in pig iron consumption, which has been offset by some increases in <unk> consumption across the across the electric arc furnace and OCR and to be clear, we've got no exposure to metallics from the Russian or Ukraine region with Big River.
Great that's very clear and my follow up is just around your flat rolled full year guidance. It looks like you'd have to be running your assets at about an 80% plus utilization consistently for the remainder of the year to get that curious what level of confidence do you have that your flat rolled assets can be around at these levels for an extended period of time.
<unk>.
Yes, I mean, I think we look at 80% utilization on blast furnaces. Emily is a really solid level. So based on our latest demand signals NCL rates into our order book, we think our integrated footprint and our mini mill footprint domestically, we will continue to be highly utilized.
Okay.
Great. Thanks.
Okay.
Thank you very much.
Our next question on the line is from Gordon Johnson with it.
G O J research go right ahead.
Hey, Good morning, everyone. This is James Barnowski in for Gordon Thanks for taking my questions.
So.
I'll keep it at two first one is just on the U S condition, we noticed that lead times have come down.
Industry wide inventories don't seem to be as low as they were earlier this year.
Scrap prices seem to be kind of rolling over is there a is there any concern there with regards to your prices.
Okay.
Yes.
Thank you.
To my earlier comments, we continue to see.
Generally good demand across across the order book it.
Steel prices certainly could find themselves in.
Continue to be in a very strong position.
And then really plateau from here. So we feel really good about where we are still prices are ultimately extremely supportive at this point in time. So we'll continue to watch the market. We think there's a lot of still positive sentiment.
There and we'll work our way through.
Some of the near term consideration, so we feel pretty good about where the business is that certainly.
Got it got it that's helpful. Okay, and then just on the quick follow up.
Ill turn it back to the Slovakia plant you gave you guys gave some great color on the current inventory situation, but how about the energy. There can you just talk a little bit about what youre seeing in terms of your costs on the energy side and any effect on gross margins and thank you.
Okay.
Sure sure happy to happy to do so so on the energy front.
And USS and U S S K.
I think we continue to see.
Some some impacts on.
On electricity rates et cetera, but I would say quarter over quarter, we wouldn't expect a lot of changes.
At least on the energy front and in the segment so.
It continues to continue to watch it but at this point in time not much of a change and as Dave and Christie both mentioned in their remarks, given where steel selling prices are.
Certainly in the first quarter, you saw margins margins expand for the segment.
Thank you very much.
And we have no further questions at this time for Q&A are not turn the call back over to U S. Steel's CEO D Burke for closing remarks.
Thank you we are delivering record performance, while continuing to invest in our business and reward stockholders. Thank you to our employees for another quarter of exceptional performance. We appreciate you.
And delivered record first quarter performance because of yield record profits equal record pay and that was certainly the case in 2021, we look forward to rewarding you again in 2022 with another year of exceptional profit sharing.
And there is no Julien profits, if we're not keeping our people safe that's why I'm. So pleased that we're on track for another record safety performance. Thank you for continuing to maintain operational excellence and keeping you and your colleagues safe to our customers. Thank you for your continued partnership.
Together, we are rewriting what is possible in steel we are not standing still and are investing in the next generation of capabilities to meet you where youre headed.
Our responsible steel certification in Big River Steel is a great example of the transformation underway to increasingly supply the green deal you need to meet your own de carbonization goals.
And to our investors when we do well you do well our stock is up over 35% year to date, we plan to significantly increase our second quarter stock repurchases and we're investing in the business to deliver even stronger results in the future. We are executing on the strategy and look forward to our continue.
You'd shared success as discussed we take ESG seriously.
We remove hyperbole on who has the best ESG with independent validation like being the only integrated steelmaker honored by Ethisphere as one of the 2022 world's most ethical companies our commitment to sustainable production was also independently.
Ignite by Daimler, who award awarded Big River with their 2021 Global Sustainability recognition award.
And as mentioned earlier safety is our number one priority. So it has been particularly rewarding to see our organization deliver record quarterly safety performance as measured by the industry standard days away from work and be on track for another year of record safety performance.
Yes, Steel's best days are still ahead of us our future is incredibly bright.
Now, let's get back to work safely.
Thank you very much and that does conclude the conference call for today. We thank you for your participation. So disconnect your lines have a good day.