Stressed Out: U.S. Steel Surges as 'Carnegie Way' Plan Heats up

 | Feb 03, 2016 | 3:25 PM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

As Real Money reported, the big U.S. steelmakers are in for a difficult 2016. But there may have been a silver lining to U.S. Steel's (X) dismal earnings report. 

Wall Street is by now well aware that the big U.S. steelmakers are under stress, as shares have tanked across the board as producers idle their mills to meet cheaper commodity prices and waning demand from oil and gas customers.

And when the Pittsburgh-based manufacturer rolled out earnings last week, things appeared even more dire than expected, sending shares on a 14% drop. (U.S. Steel is one of the 20 members of Real Money's distressed watch list.)

But U.S. Steel has lately been on a rally and ahead of its peers, surging by more than 8% Wednesday as investors regained confidence in a rally of oil prices, as well as success in the company's "Carnegie Way" initiative, which CEO Mario Longhi outlined in last week's call.

The initiative is designed to curb costs in Longhi's effort to minimize the company's cash burn in order to provide insulation from deteriorating market conditions, and the program was able to save about $815 million by trimming expenses identified by the program last year, Longhi said. 

The Deal: Bloom Lake secures sale approval for iron ore mine 

Andrew Carnegie, the 19th-century business tycoon, participated in the creation of U.S. Steel in 1901, with the sale of his enormously lucrative Carnegie Steel to a group headed by J.P. Morgan and Elbert Gary, the company's inaugural chairman. 

Shareholders want nothing more than for management to return to Carnegie's roots -- namely turning a profit -- and Wednesday's share rebound is one of the first indications that cost-cutting plan may be a step in the right direction.

"The $815 million of Carnegie Way benefits we realized in 2015 show that we continue to make significant progress on our journey toward our goal of achieving economic profit across the business cycle. Our progress is real and it is substantial, but our fourth quarter and full-year results show that it is not yet enough to fully overcome some of the worst market and business conditions we have seen."

Crude oil jumped 7% Wednesday to roughly $32 a barrel, based on U.S. benchmark West Texas Intermediate, helping also U.S. Steel rivals AK Steel (AKS) 6%, but not helping debt-laden TimkenSteel (TMST), which still managed to fall 3.5%. (Both AK Steel and TimkenSteel are also members of Real Money's distressed index.)

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: 3-D Printing and Semiconductors Are Getting Slammed

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Why the Big Steelmakers Are Tanking Today

Stressed Out: Is Avon Using Vanishing Cream on Its Cash?

Stressed Out: Sprint Is Collapsing Under the Weight of Its High-Yield Debt

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