Q4 2022 United States Steel Corp Earnings Call
Speaker 1: This.
Speaker 2: Good morning everyone and welcome to United States Steel Corporation's fourth quarter and full year 2022 earnings conference call and webcast. As a reminder, today's call is being recorded. I now hand the call over to Kevin Lewis, Vice President, Finance. Good morning and thank you for joining our fourth quarter and full year 2022 earnings call. Joining me on today's call is US Steel President and CEO Dave Burrett, Senior Vice President and CFO Jessica Graziano.
Speaker 3: and Senior Vice President and Chief Strategy and Sustainability Officer Rich Roofoff. This morning we posted slides to accompanies today's prepared remarks. These can be found on the USPO Investors page under the events and presentation section.
Speaker 4: Before we start, Larry, mind you that some information provided during this call may include for looking statements that are based on certain assumptions.
Speaker 5: and are subject to a number of risks and uncertainties, as described in our SSC filings, and actual future results may vary materially.
Speaker 6: For 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.
Speaker 7: I would now like to turn the conference call over to US Steel President and CEO Dave Burrett, who will begin on slide 4.
Speaker 8: Thank you, Kevin, and good morning to everyone joining us today. We appreciate your continued support of US Steel.
Speaker 9: We safely delivered another profitable quarter as we end a strong year of operational, financial, and strategic performance and advance our best for all strategy. You're pleased?
Speaker 10: but not satisfied and we are focused on moving faster towards our future.
Speaker 11: 2023 will be our most transformational year yet as we continue to unlock the stockholder value of our best for all strategy.
Speaker 12: In summary, we are bullish, we are confident, we are transitioning to greater stockholder value, we are focused on our competitive advantages and we are delivering on our strategy.
Speaker 13: I will start my remarks with a recap of the past year.
Speaker 14: In 2022, we delivered some all-time record performances.
Speaker 15: best safety and environmental performance in our history.
Speaker 16: best execution on strategic projects, delivering greater returns that far exceeded average cost of capital.
Speaker 17: Best cash and liquidity positions of $3.5 billion and $5.9 billion respectively.
Speaker 18: Best year in Valid sheet ever with 0.2 times net adjusted debt to EBITDA.
Speaker 19: Best strategic market volumes.
Speaker 20: Second best adjusted EBITDA of $4.2 billion and second best free cash flow of $1.8 billion.
Speaker 21: We also delivered on a breakthrough collective bargaining agreement with United Steelworkers.
Speaker 22: Instead of falling in line with other union agreements, we broke pattern from a competitor and took the time to negotiate a fair agreement where our employees continue to do well when the company does well. The agreement truly is best for all.
Speaker 23: and includes over four years, three billion dollar lower capital commitments versus a competitor.
Speaker 24: $200 million cost advantage versus a competitor.
Speaker 25: and $300 million of cash benefits.
Speaker 26: The wins of the past year were experienced throughout the enterprise and across our businesses, and our ability to perform at our best level so far translated to stockholder value.
Speaker 27: While steel prices retreated throughout the year, our stock increased in value and performed better versus prior cycles on a relative basis than most of our peer groups.
Speaker 28: That's only the start. And that resiliency is a proof point that our strategy is working.
Speaker 29: And we remain committed to delivering even better returns for our investors and we focus as we focus on the continued execution of our strategy.
Speaker 30: We're just getting started.
Speaker 31: focused execution starts with safety
Speaker 32: I'm pleased that we achieved another record year of safety performance. Our days away from work.
Safety performance is industry leading by a long shot, 18 times better than the most recent Bureau of Labor Statistics iron and steel data. Standard safety has become a drumbeat at US Steel.
2022 better than 2021, 2021 better than 2020, 2020 better than 2019. As the best in the industry, we expect that drumbeat to carry forward into 2023.
Safety results are table stakes for operational excellence.
Great safety translates to great operations.
Our drumbeat of improvement also continues across other key priorities, including strategic project execution.
In spite of inflationary pressures and supply chain delays, I am pleased to report we remain on time and on budget.
While others in the industry have not been able to overcome these challenges, we remain confident in our ability to execute our best for all future safely.
You know all of this, but it's worth repeating.
We are bullish on U.S. Steel's future. Our future is less cost intensive, less capital intensive, less carbon intensive, and enables us to become the best steel competitor as measured by EBITDA multiple improvement in the near term, and best customer and stockholder value longer term.
To become the best we are transforming our business model by expanding our competitive advantages in low-cost iron ore, many mill steel making, and best in-class finishing.
We are also generating value through a balanced capital allocation framework.
maintaining our strong balance sheet, investing in capabilities that grow our competitive advantages and generate returns in excess of our cost of capital.
and returning capital to stockholders.
And with the added support of continued strong trade enforcement, our path forward to our best for all strategy is becoming a reality.
So this morning I want to spend some time talking about that reality.
a reality that we are achieving with each quarter of strong performance and strategic execution.
And while I know it's easy for many to focus on just a short term, I want to create the drumbeat for our future. A future that is delivering for our customers, our employees, our planet, and most importantly, you, our cyclers.
Let's get into today's discussion on slide five.
Our best for all strategy is focused on value creation, ESG transformation and disruptive innovation.
The strategy we are executing is delivering.
our low-cost iron ore.
and a differentiated metallic strategy.
Our transition to mini-milk steel making, which serves as a catalyst to generate increased and resilient free cash flow, and our best in-class finishing capabilities are crucial to sustainable
Finishing assets in Gary Works and Protech are unmatched today. These solutions align with our customers' priorities and support our BOLD 2030 and 2050 sustainability goals.
Innovations the name of the game and disruption in the steel industry is inevitable. We intend to innovate to disrupt.
Steel making innovations expected from Big River 2 should extend our leadership role in producing advanced grades with up to 80% fewer greenhouse gas emissions.
We recently brought in innovative expertise to accelerate our strategy execution.
Christian Giani joined the company in the fourth quarter as Senior Vice President and Chief Technology Officer.
John Gordon also recently joined US Steel as Senior Vice President, Raw Materials, and Sustainable Resources. John is unlocking greater stockholder value from our unique low-cost iron ore competitive advantage. His extensive and diversified mining background make him uniquely suited for leading this core sustainable competitive strength. Let's start with our low-cost iron ore advantage and metallic strategy. US Steel has been and continues to be the low-cost producer of iron ore in northern Minnesota.
Low cost iron ore has historically been a competitive advantage as a key component of the supply chain for our integrated blast furnace operations.
That value remains today. This advantage will grow our value creation potential as we continue to execute our differentiated metallic strategy in our transforming footprint with state-of-the-art mini-mill steelmaking.
If the geopolitical events of the past couple of years have taught us anything,
It is at strong supply change, change secured access to raw materials, and production capabilities matter. That is why U.S. Steel is creating value for stockholders by investing in internally sourced pig iron at Gary Works and expanding our capabilities.
to produce higher grades of pellets at our keytack operations.
Our investment in up to 500,000 tons of pig iron production at our Gary Works facility was completed ahead of schedule and on budget, with the first barge of pig iron received at Big River Steel on January 6.
By thanks to the construction team at Gary Works for the excellent work and your focus on safety. We had zero reportable injuries and over 185,000 hours worked.
Safety first was a term invented by U.S. Steel and remains our top priority. Our team runs operations with high quality safely.
As the metallic headwinds of the back half of 2022 ease for our mini-mill operations, our investment in pig iron will only help to amplify the positive momentum we are experiencing as we enter 2023.
The pace of change at US Steel is accelerating and we have no intention of slowing down. Our ability to invest in capabilities that generate value and buy back our stock is enabled by more resilient levels of free cash flow.
We've moved quickly to create a business model that increasingly supports growth.
We've moved quickly to create a business model that increasingly supports growth and direct returns to stockholders.
Next on Minnie Mill steelmaking, as we continue to shift our domestic steelmaking volumes from integrated to electric arc furnace production, we're not only transforming the way we make steel,
which is greener and with best capabilities, but we're also transforming the earnings power of steelmaking for our company, delivering higher margins.
higher and more resilient free cash flow. That's powerful value creation.
And I'll go as far as, say, U.S. Steel provides the best opportunity to create and prove stockholder value in the sector today. We believe EBITDAW multiple expansion is within sight.
In just a few short years, we've created a mini-mill roadmap that we expect will deliver 6 billion tons of mini-mill capabilities, an annual through-cycle EBIDA of $1.3 billion and annual through-cycle free cash flow generation of a billion dollars or more.
Note that I said through cycle and those numbers I provided represent Ernie's power and free cash flow generation that our company has never had before.
It bears repeating. That is powerful stockholder value creation.
Now, it's up to all of us at U.S. Steel to continue to execute.
Our focus is winning today because when we win all our sock holders
win, stakeholders win, and that includes our customers who are pleased to serve.
by producing.
sustainable steel solutions with best-in-class finishing capabilities.
This year we expect to complete another important milestone in our best-for-all strategy that will expand our offering of sustainable lower greenhouse gas emission steel.
at Big River. We are on track to bring to market thinner and wider non grain oriented electrical steels in the third quarter. These steels will add to our differentiated portfolio of strategic market capabilities by directly supporting the growth in the electrical.
vehicle market. Our investment in electrical steel finishing capabilities is expected to add an additional $140 million of through-cycle earnings power to our business. Expand our Big River margins by about 400 basis points.
and adds another layer of free cash flow from the mini-mill segment.
At U.S. Steel, our customers are already partnering with us on advanced high-string steel and verdicts deal.
and soon we will add electrical steel to the portfolio.
Our customers are reimagining their own sourcing strategies, including our automotive customers, and we are pleased and eager to continue to serve our long-term relationships with them as their needs change. We truly value our customers' partnership.
We capture chair for 2023 from those that don't share our customer first mindset and welcome additional opportunities to best serve customers this year and in the future.
So that's our drum beat for the future. Best iron ore to create a differentiated metallic strategy. Best mini mill performance to fuel a free cash flow engine. And best-in-class finishing capabilities to deliver our customers the sustainable steel solutions they crave.
These investments will deliver long-term value, incremental free cash flow,
returns in excess of our cost of capital.
Before I pass it to Jess, let me provide a brief market update on slide 6.
Our NAFRA and Mini Mill segments have positive momentum where we saw economic and industry trends improve through the end of the fourth quarter and to start the year.
Prices are increasingly supported by rising scrap costs.
increasing global metallics and iron ore prices, and extending lead times.
We were successful in our annual contract negotiations.
and our annual contract negotiations for the beginning of the year.
we continue capturing market share.
We continue securing additional automotive volumes at Big River. This success is a product of close customer alignment and our preparedness to support our OEM's transition to mini-mills and our product development.
automotive volumes at Big River. This success is a product of close customer alignment and our preparedness to support our OEMs transition to mini mills and our product development collaboration.
and research capabilities. In Europe , significant challenges remain. Deal prices are increasing from a very low base and are beginning to offset high energy and increasing raw material costs that continue to pressure segment performance.
In tubular, today's energy market remains stable with consistent demand supported by strong trade enforcement.
With that, let me turn it over to Jeff now to cover the financials. Jeff?
Thanks Dave, and good morning everyone. I'll pick up on slide 7.
As Dave described, we've moved quickly to create a business model that creates value for stockholders today and tomorrow and increasingly supports growth and direct returns.
Since December 2021, we have consistently included share repurchases as part of those direct returns, and through year-end have returned $1 billion to shareholders with buybacks, in addition to our regular dividends.
That includes 150 million in repurchases completed in the fourth quarter.
When you consider repurchases to date, we've reduced our diluted share count by approximately 15%. We know that free cash flow is the most important source of enduring value creation, and we know the trust you show in our balanced capital allocation framework to put that cash to work on our strategic goals. To that end, we're on track to deliver incremental annual run rate EBITDA.
profile allow us to continue to execute our strategy with conviction this year.
The balance sheet also provides an opportunity to continue repurchases on our current authorization.
We completed an additional $50 million of share buybacks in January and will look to complete the remaining $250 million left on our current program in 2023.
Let's look at the fourth quarter's results on slide 8.
Fourth quarter adjusted EBITDA came in at $431 million. This is an improvement over the December 15th guidance we provided of approximately $375 million.
A stronger than expected December in both NAFRA and the Minimil segment, as well as in tubular, contributed to that BEAT.
And we're pleased to see the strong finish at your end from our great team.
Importantly, that momentum has carried into Q1 for those businesses.
That strong December also contributed to better than expected adjusted EPS, which came in at 87 cents per diluted share.
It translates into 131 million of free cash flow for the quarter, contributing to our best ever cash and liquidity positions at your end.
Slide 9 recaps 2022 financial results, our second best in the company's 122-year history.
For the full year, our business generated adjusted EBITDA of $4.2 billion, adjusted EPS of $9.95 per diluted share, and free cash flow of nearly $1.8 billion.
We believe there is no better value than U.S. steel in the sector today. Over the past two years, we've generated a record $5 billion of free cash flow.
And in this time, we've been able to deliver a balance sheet and debt maturity profile that continues to be strong as steel. We've advanced best for all, high return strategic investments that are transforming our business model and redefining what cash flow generation will look like for U.S. steel. And all the while we've rewarded stockholders with over $1 billion of direct returns.
million dollars of Ibiza at double digit margins.
overcoming the pressure of declining steel prices and customer de-stocking.
Firm price contracts in our flat rolled segment helped to mitigate the negative impact from lower market prices in the quarter. As a reminder, firm and cost-based contracts represent approximately 30% of our flat rolled segment order book. Volumes in the quarter declined 13% compared to the previous quarter.
to the spot market than NAFER, and the Minnie Mill segment saw a 28% reduction in average selling price for the quarter. Similar to our competitors, Big River's performance in Q4 was also weighed down by the impact of our continuing to absorb high-priced pig iron procured at the onset of the Ukraine War.
We calculated the metallic headwind in the quarter to be about $40 million, or about 7 percentage points of margin in the quarter.
Absent these cost pressures, Big River would have reported positive adjusted EBITDA for the quarter. And even with these increased raw material costs, Big River delivered positive EBITDA in December and is building on that momentum to start Q1. By mid-February, we expect to put these raw material challenges behind us.
in part due to the insourcing of pig iron from Gary Works. Turning to Europe , which remained challenged in the fourth quarter.
Our European segment was impacted by reduced end customer demand.
in the region that extended the typical year-end de-stocking cycle.
This led through to selling prices, which was amplified by the segment's exposure to the spot market.
Challenges continued to impact the region from the effects of the Ukrainian conflict. Higher energy costs and an extended, more expensive supply chain created additional margin pressure in the quarter.
On a brighter note, our tubular segment delivered impressive results in Q4. Strong selling prices and a reconfigured tubular business model with internally sourced substrate resulted in record level EBITDA margins for the segment.
Let's now look ahead to the first quarter, which is expected to mark a trough for 2023, based on prevailing steel price forecasts.
Encouragingly, lead times are extending, customer inquiries from key end markets are growing, and seasonal tailwinds are all expected to improve performance moving forward into 2023.
I'll share a few Q1 comments on each segment. In our flat-rolled segment, shipping volumes should increase versus the fourth quarter.
In response to increased demand and an improved order book, we recently restarted Blast Furnace number 3 at the Mon Valley. And we're watching the book closely. And for now, we'll keep Blast Furnace number 8 at Gary temporarily idled.
Higher volumes in NAPR should also help to partially offset the negative impact of lower steel prices and the typical seasonal headwinds we see early in the year from our iron ore mining operations. For those of you that have followed us for years, you know that mining headwinds are unique to the first quarter and we expect them to be about $75 million.
As you know, our ability to ship iron ore pellets, either to our own operations or externally, are limited as the locks on the Great Lakes close for much of the first quarter. At our mini mill segment, I mentioned the momentum coming into Q1, which we expect will return the segment to positive EBITDA for the first quarter. Our metallic margin will improve with the start of pig iron shipments from Gary.
furnaces number one and number two earlier this year. However, these higher volumes will not outpace the impact of lower average selling prices in Q1 and the impact of an extended supply base and high energy prices.
As a result, we expect EBITDA for the segment will remain negative in Q1.
In tubular, higher selling prices and consistent demand are expected to result in higher quarter-over-quarter adjusted EBITDA.
And when you add it all up, first quarter adjusted EBITDA for the company is expected to land in the range of $250 to $300 million.
Looking beyond Q1, I'll mention we have also shared aspects of our full year outlook in last night's presentation to be helpful in your modeling. This includes full year shipment guidance, 2023 CapEx, and the
DDNA, annual pension figures, and cash interest expense. And with that, Dave, I'll turn it back to you. Thank you, Jeff.
Before we open the lines for your questions, let me recap our prepared remarks on slide 10. We are building momentum into 2023 and setting up for another year focused on stockholder value creation, ESG transformation, and disruptive innovation. ESG and our strategy execution are uniquely linked.
2022 marked our best year for progress against our environmental goals, and we are advancing strategic projects that will further greenify our footprint as we transition to more mini-mill steelmaking.
we'll generate a lot more cash too. We are continuing to create value for our stockholders. We are continuing to create value for our stockholders today.
as we continue to deliver on our strategic commitments and with continued share buybacks in the future with an incremental $880 million run rate EBITDA contribution from our strategic projects.
We're pleased with the successful start-up of the Gary Pig iron operation and our advancing our NGO.
Galvalume, DR Grade Pellet Investment, and Big River II in-flight strategic projects on time and on budget.
We are bullish on U.S. Steel.
bullish on U.S. steel. Kevin puts move to Q&A.
Okay, thank you, Dave. Our first question comes from, say, Technologies.
We received several questions on the economy and the potential impacts to domestic steel demand. Dave, can you get us started on your views and outlook on the economy? Yeah, thank you, Kevin, and thanks for that a really broad question, but I think it'll be informative in terms of how we're thinking about this.
it does feel like there's a lot of optimism coming back as the economy progresses in this year.
Change in sentiment is turning positive and it looks like a really good start with this positive news.
There are several other factors on the horizon that could provide some additional upside. We've all seen the calming and lower trending inflation. The easing Fed rate highlights 25 basis point was the latest increase.
Supply chain improvements continue. We got the fiscal stimulus, the CHIPS Act, the infrastructure bill, the climate change, our inflation reduction act. Infrastructure bill, likely second half 2023 or 2024 tailwind, so that's
only just beginning so we would expect that to accelerate. And then of course there's the bipartisan support for national security in the 232. Resurring and insured if supply are developing trends.
United States and US Steel is uniquely positioned with mine melted and made.
in the USA. Steel prices, you've seen them trending up, supported by higher scrap and iron ore cloth.
accelerating industry demand, longer lead times. The tailwinds seem to be growing.
We are keeping an eye on any potential hurdles including, of course, we've all seen the yield curve inversion.
declining PMI, declining M2 money supply, declining housing permits. There's lots of geopolitical risks. So there's a lot of things around the corner, no doubt about it that are unknown.
But we'd say if there's no system shock, shocks to the economy, we'd expect this to be dialed in about right and we'd expect a soft landing. Perhaps a mild recession in the back half of 2023 and a strong recovery in 2024.
If there's a recession, we believe it'd be consumer-led, but I like the phrase that somebody used called Goldilocks Landy. I think it's not too hot, not too cold. Feels like it could be just right with a bunch of geopolitical arrests, of course, along the way. But you all know this, we are focused on what we control.
we're going to get our strategic projects completed on time on budget and we're going to improve our free cash flow generation of the business through cycle and Enhance our EBITDA multiple.
Okay, thanks so much, Dave. So with that, Tommy, you may now cue the phone line for questions. We ask that you each please limit yourselves to one question and a follow-up so that everybody has the opportunity to ask a question.
Thank you. And if you would like to register a question, please press the one followed by the four on your telephone. You are a three-tone prompt to acknowledge your request. If the question has not been answered, I would like to draw your registration. It is the one followed by the three. Once again on the phone, if you have any questions or comments you may have, please press the one followed by the three.
It is the 14 on your telephone keypad. One moment please for our first question. And we'll get to our first question on the line from the line of Alex Hacking with Citi. Please go right ahead. First question, do I have access to your dashboard on my phone.
But when I look at the mix of your contract versus spot in the slides, particularly on the mini-mill side it looks like the firm pricing is significantly lower than it was last year. And when I look at the flat rolled side, the firm business is still sort of I'd say significantly below where it was 3 or 4 years ago. So I guess how should we…
How should we square that away? And then I guess adding to that question, one of your competitors has been pretty vocal about where their auto contracts ended up. Did you achieve similar results? Thank you very much. Yeah, that's a really good question. Let me start this out. And then I ask my teammates to weigh in as well. We've been doing very well on the automotive agreements. We've got good back.
Vertex steel, particularly at Big River Steel, where we have the automotive sector very interested in about 5,000 acres of fuel at every hour.
that much lower carbon and of course for us that's very low on the cost curve. And Big River steel of course with the new products that we're putting on it folks are lining up for the NGO line which will be the electrical vehicle and the motors there which will be
without question the best in the United States, but but for As far as the contracts and like
It's true that Big River Steel does mostly have the spot business, but as we move up the food chain we'd expect to have more of the fixed contracts that mirror closer to what...
we have across the enterprise, but that'll take a little bit longer. Yeah, and then Alex, the only thing I would add is your reference to the pie charts and our materials, right, those being year-end 2022 figures, we'd expect to see, you know, that market share capture change in, you know, customers' desires for, you know, more index-based contracts a year ago and maybe more...
spot exposure this year to flow through in the 2023 contract next. So given the volume gaze we believe we've made across the auto and other end markets you'll see that flow through increasingly to our product next this year and in our contract structures this year.
Thank you.
Thank you. Thank you very much.
We'll get to our next question on the line. It is from Tristan Gresser with PNB Parabas Exane. Please go right ahead with your question.
Yes, hi, thank you for taking my question. Can you discuss a little bit what you're seeing for the tubular division near term but also for the full year? That's maybe the only division when the guidance of volumes fell a bit short of market expectations. Can you talk a little bit about the commercial strategy there?
The evolution of the contracts mix as well we've seen on the slide there. It's fair to assume, given your commentary and what we're seeing on the ground, that we could see some margin resilience in the first half. Thank you. Thanks Tristan for the question. This is Kevin. So Tubular certainly is a very large bright spot in the market.
Like the Eagle Ferd, like the Permian, like the Haynesville Strategic Basins, and have increased our exposure to that business. So that allows us to have a much more resilient, you know, tubular order book, and certainly in a strong environment like today is resulting in, you know, record margins. On the demand side, I think what's important to remember is...
given the high utilization rates that we ran in 2022. So with all that being said, I think Tubular is obviously in a great position for 2023. We certainly expect prices to be higher in Q1 versus Q4. And as I think both Dave and Jess mentioned in their remarks.
we should see another really, really strong quarter performance for tubular in the first quarter of the year and resiliency certainly throughout the year.
That's very clear. Thank you.
Thank you very much.
We'll get to our next question on the line from Emily Chang with Goldman Sachs. Go right ahead.
Good morning, Dave. Justin Kevin, thanks for taking my questions. My first is a follow-up around sort of the pricing expectations for the minimal business, particularly as you think about the NGO line coming into service in the third quarter of this year. How long do you anticipate that qualification process to take and should we expect this product to be sold at fixed price contracts and how should we start to see that impact pricing throughout the course?
You know, electrical steel is traded a significant premium to spot prices and to heart recoil prices. So we're having those types of conversations now with our customers as they look to secure line time at that facility and ultimately add it to their portfolio of business with our companies. So we're seeing lots of activity, lots of interest, and our commercial teams are deeply engaged in those discussions. And when that line ultimately comes up, you're going to see it really enhance the product of the buck mix at Big River. Dave mentioned in his remarks about 400 basis points of margin expansion based on that richer mix and those volumes being pulled through the campus third Big River.
Great, thanks, Covenant. Maybe a follow-up is just around the flat-rolled businesses cost structure there. It looks like your utilization rates have fallen about 15% there from two cutiforce levels last year, but cost per ton have been pretty flat. But still elevated relative to prior year levels. Maybe can you talk a little bit about what's been happening at the flat-rolled business that has kept those cost per ton.
of the Mon Valley, which are temporarily idled, and you look at the applied utilization rate of those furnaces that remain, we are in excess of 80% levels of utilization. So that's a very healthy level of utilization to run blast furnaces, and our team did an excellent job not only running them safely, but doing it in a very prudent way from a cost perspective. So as utilization rates then increase at the Mon Valley, as that furnace ramps up, we should see probably some rains
some additional cost improvements as well. And we're certainly focused on driving continued efficiencies and yield improvement, labor productivity, etc. So I think there's some continued opportunity to lower costs in 2023.
Great, thanks. Thank you very much. We will now proceed to our next question on the line. It's from the line of Phil Gibbs with KeyBank Capital Markets. Go right ahead.
about how you design those, you know, with the long-term strategy in mind. Sure. Thanks for that question, Phil. And the collective bargaining agreement, I would say, all things considered went very smoothly.
those, you know, with the long-term strategy in mind? Sure, thanks for that question, Phil. And the collective bargaining agreement, I would say, all things considered went very smoothly. We took the time.
We were very purposeful and we had in mind what would the expectations were and we worked very well with the during the USW and negotiations and we felt great that we were able to.
break away from the pattern, but mostly that was because of the stellar
but mostly that one's because of the stellar pension.
that we have, particularly with the VIVA, which was 200% overfunded. Because of the way that operates, you can actually, you know, I suggest a way in on this, we can actually make sure that we use...
have, particularly with the Viva, which was 200% overfunded. Because of the way that operates, you can actually, and I suggest to weigh in on this, we can actually make sure that we use those.
the cash from the pension that is overfunded to be able to pay for active medical and then that active medical.
is reduced, so that would enable us to provide increases in pay. And so when we think about the collective bargaining agreements, what we want to do is we want to strive for more variable pay with a philosophy of pay for performance, meaning when we do well, our employees do well.
So we have a bias for profit sharing. In fact, uncapped profit sharing, like we had here the last few years, where people can make substantial amounts of money. That's the model that we have at Big River. And we believe that when you have a variable pay structure, you end up with a much better
result for your employees, for your company, and certainly you can then invest more in innovation to support your customers. So we're very pleased with the flexibility working with USW to get an agreement that works very well for us. Very different than the competitor that...
was first brought to us that plan, but we feel really good about this and maybe just a little bit more just on how the Veeble works because we do take a long-term view of this relationship with our employees as with our customers, as with our stockholders. But just. Yeah, thanks Dave, and Phil, thanks for the question.
I'll mention the Viva in a moment, but there actually were a few really significant financial considerations within the CBA that our negotiating team did a fantastic job in making sure that we are thinking of our employees and thinking of the company, right, and the approach that we took to shown how important it was to help our employees as a team, I think it was just quite
to get the CBA negotiated. So the Viva is one of them. So Dave mentioned our OPEB plan, our OPEB funding, was significantly overfunded to the tune of 200%. And so what we have been able to do is to
tap into that overfunded status. It's still significantly overfunded, right? It's in excess of 135%, but we were able to carve out some of that overfunded amount and utilize that as a direct cash offset to active medical expenses incurred by our represented employee.
have paid for with corporate cash. So that opportunity to offset some of the cash flow for the company ensures that again the represented employee is the medical is still in place but we have this offset in terms of the economic burden right by directly accessing that excess Viva funding.
for the, across the four year period. So that's the first thing. I think the other thing worth noting is we were able to leverage what was, what continues to be a very strong cash position in being able to reward our represented employees with a one time cash bonus at ratification.
And so that $64 million one-time bonus was paid in the fourth quarter, and again, puts money in the pockets of our represented employees real-time, in addition to what we've negotiated as what we believe to be a fair salary increase over the four-year period as well. We also believe that negotiating—
what will be a billion dollars of capital investment commitments over that four-year period. We'll continue to supply supportive CapEx to maintain our integrated assets with really exceptional operating quality and reliability performance, but is at a significant advantage to some of the commitments that...
that were negotiated by our competitor. So we feel really good from a financial perspective about the overall considerations in the CBA and obviously are happy to get to work within the integrated mills. I'd say the collective bargaining.
teams on both sides, USDL and USW. They were very creative to work together. I have to say I was very impressed with the outcome that they were able to come together to make sure that we what we like to say best for all because this was clearly a great agreement for our employees. It was also great for our stockholders too because of the cash saved and the
the costs that we have approved versus a competitor. So we're very, very pleased with the relationship with the USW and of course really delighted that we're able to give our employees such a great contract. If I could sneak in a follow up here, just can you update us on?
Granite City and that plan, I believe, for your relationship with Suncoke to potentially do some pig iron modules over time. Anything that you could provide there as an update would be helpful. Thank you so much. Yeah, sure. I'll turn it over to Rich here in just a second who's providing some leadership there. I would say that the discussions are ongoing. We're working really hard to.
the conversations with Suncoke and congratulations to them. I think they had a great year last year. I saw their earnings released. So no, we're in regular contact with Suncoke. The conversations continue and as Dave said we're trying to figure out how we can make this work for both sides so it's a win for everybody.
Thank you. Thank you very much. Once again as a reminder if you like to ask questions or have any comments you may do so now by pressing the one full by the four on your telephone keypad. We'll get to our next question on the line from Lawson Winder with Bank of America. Please go right ahead.
Hi, thank you operator. Good morning Dave, Jess and Kevin. Thanks for today's update. I wanted to ask about your decision to restart Mon Valley. My understanding is that Mon Valley mainly serves the appliance market. Have you seen any strong indications from those customers?
that demand is in fact strengthening. And why I'm asking is just, I mean, there remains this view that appliance demand could be weak if there's any sort of macro headwinds like with residential market or interest rates. Love your thoughts on that. Thank you.
What I'd say is that I say more last year we felt more the headwinds we we obviously match supply and demand so the fact that we're turning on a blast furnace is an indication that things are better. Obviously with the economy and the headwinds
confronting the residential space. There is some pressure on the appliance but I would say it is better. I would say probably third quarter issue was a lot more challenging but we're encouraged where we are and we'll have to see how it plays out.
And a lot of the only thing I would add to today's your marks is the Mon Valley also serves some of our construction Converter and service center business and you know, we were just looking over all the the order book We saw order entry rates significantly outpacing our melt production plans and that was a very clear
trigger point for us to make the decision to return that furnace to service at the Mon Valley in support of our customers and to ensure we have the right delivery performance that we need to earn their business going forward. Good pockets of demand throughout the Mon Valley benefited from that with the restart. Okay, fantastic. Thanks for that color. And maybe if I could just follow up.
in 2023. Could you maybe just comment specifically on those numbers versus the 523,000 tons in 2022? Sure, happy to. We provide a range, obviously, given it's a full year look, but I would say at this point in time, there's nothing that we're seeing in the tubular segment that would have us cautious.
the upper end of that range. So I would expect at this point in time at least similar levels of shipment volumes in 23 as 22.
end of that range. So I would expect at this point in time at least similar levels of shipment volumes in 23 as 22. Thanks very much fantastic.
at this point in time at least similar levels of shipment volumes in 23 as 22. Thanks very much. Fantastic.
Thank you. We will get to our next question on the line. This is from Gordon Johnson with GLJ Research. Please go right ahead. Hey guys, thanks for taking my question and congratulations on the strong cash flow. A lot of the questions I had have been answered, but I just wanted to get your thoughts on kind of a broader question.
Just looking at the US economy and given consumer spending, the engine of the US economy is starting to sputter. You have retail purchases down to three of the past four months. You have spending on services flat in December , which is the worst in a year. Home sales last year fell to the lowest level since 2014. Auto sales. It varies dime share with merchant customers.
the worst since 2022 last year. It just seems like some of the forces that help keep spinning higher kind of unwinding. Just wanted to get your thoughts on given those dynamics.
What do you guys think about pricing in the first and second quarter and the second half? And then one follow up, thanks. Well, thanks. I think we are seeing prices come back. Obviously, we talked about that a bit earlier. So through the first quarter, things related to price and demand are stronger. It's always hard to forecast in this industry what's going to happen.
I believe it's going to be a soft landing in the back half, but the reality is nobody really knows for sure, but I think the key piece here is if you look at labor markets, they continue to be very strong. People continue to have jobs, they continue to spend, and they continue to...
move the economy forward but if there's going to be a deeper session or a recession it's probably going to be consumer let as I said earlier but for right now it does seem good for the first quarter in terms of pricing. We have indications that longer term it should be really good because we've got these bills that will start.
And the infrastructure bill really hasn't hit yet. And then with the IRA and of course the CHIPS Act moving forward, those are all very positive things. And I think with the Fed easing rates, we should probably see this thing continue. We said some time ago, we don't see, even though we model towards the average price.
CRU index when we do our business case studies, we believe it should settle higher than that over the cycle because we have had industry consolidation, we have had changes in the dynamic, we have better trade enforcement. So again, it gets back to them. Really bullish longer term, we're in this transitional period with
So we're going to be able to manage whatever comes our way. But I'm bullish on the USA. I'm bullish on the US steel industry. And I'm bullish on US steel. And I believe longer term, the prices will be sustainable and higher. Thanks. And just a quick follow up.
You guys have built a strong cast position. Any plans, maybe you didn't mention on what you plan to do with that strong cast position. Thanks for the questions and congrats on the results.
Well, thanks for those comments, Gordon. We appreciate them. We keep doing the beating of the drum. We've got these strategic investments we have to get through because we're going to generate a billion dollars of cash through these and we'll be done with those at the end of this next year. We feel really good about getting those strategic.
that our stockholders can always appreciate and expect for us to be able to give director turns and stock buy back. If I can add Dave thanks just a quick comment to that. Gordon what I would say is if you come back to our the framework of our capital allocation strategy that's really a guide towards the way we're thinking of
that are going to generate even more cash flow, right? That virtuous cycle of investing in a business to drive more cash, to reinvest and drive more cash. And then ultimately, the opportunity that we have today and tomorrow to have that cash be returned to the stockholders.
in direct returns. We're really excited about the opportunity that we have in what we've built so far and how the continued focus of capital allocation and those strategies is just going to give us more power to grow in the future. I think we need to all be clear on this. We got the capital allocation strategy. It's a healthy balance sheet making sure we get the strategic projects done.
If there's a 15% or better return that we can get quickly, we're in and then of course we got the dividends and the stock buyback. But look at that schedule in there. That's what we're following. And as long as we're generating that cash, we believe we're going to be in absolutely fantastic shape. Thank you very much.
And that was our final question. I'll now turn the call back over to US Steel CEO Dave Burt for closing comments. Well, thanks again for your interest in our company and our strategy. We're looking forward to building on our successes from 2022 and delivering value to all of our stakeholders in 2023.
None of this is possible without the commitment and dedication of our teams.
Thank you for safely working for our customers and delivering quality, sustainable steel solutions.
We can't stand still and we have a lot more success together. And to our customers, thank you for your continued partnership, your support motivates us every day to make U.S. Steel the best steel company and to provide you, our customer, with profitable steel solutions for people and planet.
We appreciate you and thank you so very much for the increase in market share. Thank you also to our investors. If you currently own U.S. Steel stock or are considering a purchase, know that we remain committed to delivering on our strategy, determined to execute those plans as promised, and focused on generating the best stockholder value improvements from our transition.
to best for all. Now let's get back to work safely. Thank you very much and let us conclude the conference conference today. We thank you for your participation as we disconnect your lines. Have a good day everyone.
a
The and and and four St and of F.