Improving Financial Health for the U.S. Steel Corporation
In the increasingly competitive global steel industry, U.S. steel companies have had a rough go of it. So we were pleased to share some positive news recently.
In a recent blog post, The U.S. Steel Industry Strengthens, Credit Conditions Improve, we presented an improved financial outlook for the domestic steel industry. Factors such as an uptick in GDP, expectations of stricter trade policy, and recent pricing improvements have all contributed to lower financial risks.
As a result, companies once considered at risk of bankruptcy have benefited from improved business conditions and positive sentiment.
Today, we focus on specific counterparty risk, for the U.S. Steel Corporation. Let's take a deeper look at this company's financial risk trend.
Positive Risk Trend for the U.S. Steel Corporation
The U.S. Steel Corporation, has struggled over the years. But a look at their 2016 credit risk score trend, and the financials that support it, shows a marked improvement.
The chart below shows how their FRISK® score -- which measures the probability of bankruptcy over the next 12 months -- has improved from a '2' earlier in the year, to a '4' currently. (A score of ‘5’ or below indicates increased risk of bankruptcy). The company's financial risk is somewhat elevated and worse than industry peers, but has much improved over the past two quarters.
Other recent trends to note:
- US Steel Corp. has been facing legacy and operational issues head-on. This has resulted in operating upgrades and greater efficiencies in downstream mills, that can now run at higher utilization levels. These efficiencies are reflected in U.S. Steel Corp.'s P&L - such as increases in gross margins, operating margins and net income (all found in the CreditRiskMonitor interim financials assessment page, available to service subscribers).
- New mini-mill platform configurations - in key end use markets - are requiring lower cash expenditures to restart, and positively impacting returns on invested capital at the margin. U.S. Steel Corp.'s net debt has been reduced materially, with a concurrent rise in servicing capability, and EBITDA (gross cash flow) coverages of outstanding liabilities. Optimal leverage would be 35% debt to stated equity, as reflected in the CreditRiskMonitor FRISK® score and credit metrics.
- Significantly diversified raw materials pricing has improved margins. U.S. Steel Corp. has diversified it's sourcing of metallurgical coking coal, which has experienced price increases during 2016 similar to rolled steel pricing, and had previously stockpiled an excess of supply, and so is benefiting from the competition who did not assume such similar measures.
Despite an improving FRISK® score trend, it's important to note that the company isn’t completely out of the woods. Events can change the outlook quickly: the loss of a big customer, higher interest rates, a strengthening dollar, or other unexpected factors.
With a FRISK® score of ‘4’, U.S. Steel is still in the ‘red zone’ of increased risk. While financial health has improved for now, continue to monitor the company closely.
The FRISK® Score: Bankruptcy Probability and the ‘Red Zone’
As we demonstrated with U.S. Steel Corporation, business conditions change. The FRISK® score is a financial risk score that alerts you to important changes in a public company’s financial health, by predicting bankruptcy risk, based on a wide number of factors such as financial ratios, agency ratings, and market data.
The FRISK® score is calculated by a proprietary model that has been back-tested over the last decade to predict 96% of public company bankruptcies, and has been enhanced through crowd sourced behavioral data patterns. It is calibrated to a 10-point scale, where a score of ‘5’ or below indicates increased risk of bankruptcy, also known as the 'red-zone'.
The chart shown below displays the statistical probability of bankruptcy within the next twelve months for each score category:
Bottom Line: Are Your Counterparties Financially Sound?
At the end of the day, what matter’s most is your own company’s counterparty risk.
To stay ahead of risk, learn which of your customers and suppliers have critical credit issues, and how to monitor changing financial risk:
- Search for a specific public company in our extensive database.
- Monitor your counterparty credit risk for customers and suppliers.
- Call us for a personalized assessment of your specific public company financial risks.
Learn your financial risks: Contact us for a free credit risk assessment
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.