(Bloomberg) -- U.S. Steel Corp. plunged after delivering a barrage of harsh news, warning of a loss and announcing it will shut down most of its Great Lakes Works facility near Detroit, lay off workers and slash its dividend.
The adjusted loss is expected to be about $1.15 a share in the fourth quarter, with a fully diluted loss of 42 cents for 2019, the Pittsburgh-based company said Thursday in a statement. The industrial icon plans to lay off as many as 1,545 workers from the Michigan plant, reduce its quarterly dividend to 1 cent from 5 cents, and prune capital expenditures.
U.S. steelmakers are facing slowing demand in the manufacturing sector, even though mills have enjoyed protection because of Trump administration tariffs. U.S. Steel has been a laggard in the domestic industry, with aging plants that are less efficient than rivals with newer technology. That's led to a spate of operational initiatives under different names that have shifted multiple times since 2014.
The shifting strategies "raise concerns that there's no long-term, overriding execution capability to improve competitiveness," Richard Bourke, a senior credit analyst at Bloomberg Intelligence, said in a note. "Cash costs from layoffs will likely exceed savings from the cuts, in our view."
Bourke cited the "Carnegie Way," the Asset Revitalization program, steel technology projects and Big River investment among the "ever changing changing operational priorities."
U.S. Steel stock has sunk by about a third this year, hitting the lowest since 2016 in October, even as the broader U.S. equity market hit all-time highs. The shares dropped 8.1% to $12.28 at 9:45 a.m. in New York.
In October, the producer announced a $700 million investment in a steel mill with rival steel technology to the legacy integrated mills the company has operated. Chief Executive Officer David Burritt surprised some analysts during a conference call after the announcement when he said the new investment would be a core part of the business, conspicuously leaving out Great Lakes Works and Granite City -- two legacy mills -- as key to the company's future.
All of this comes more than two years after U.S. Steel shocked investors with a three- to four-year plan to revitalize aging facilities that were choking earnings. Former CEO Mario Longhi stepped down weeks after the unexpected announcement, Burritt stepped into the role, and by July 2017 stated that the projects price tag would be $1.2 billion.
The company said Thursday it will indefinitely idle a "significant portion" of the Michigan operation, starting with the iron and steel-making facilities in April and then the hot-strip mill rolling facility before the end of 2020.
The company's late-Thursday night announcement was met with a mixed reaction from Jefferies LLC, which said that while the expected loss was worse than analysts had expected, there would be benefits for the industry as a whole from the plant closures.
Although the loss "likely surprises most investors, its proactive move to permanently idle Great Lakes Works is laudable," analysts including Martin Englert said in a note. "We see the shuttering of U.S. flat-rolled steelmaking capacity as a broader incremental positive for the domestic industry into 2020 and beyond given the numerous expansions planned by peers."
The Trump administration put 25% duties on imported steel in March 2018, fulfilling a campaign promise to help the steel industry, which he said was suffering from dumping by actors like China. Michigan, where U.S. Steel's Great Lakes facility is located, was narrowly won by Trump in 2016, helping pave his way to the White House.
"Current market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now," Burritt said in a statement. Production currently at Great Lakes Works will be shifted to Gary Works in Indiana.
It was a stark change from Burritt's comments in 2018 when the company restarted two blast furnaces in Granite City, Illinois. Back then, the CEO hailed Trump's tariffs for creating the market conditions to boost supply and re-hire workers.
--With assistance from Steven Frank, Jake Lloyd-Smith and Reg Gale.
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