United States Steel (X, Financial) looks great with its transformation efforts. The company expects this self-controlled strategy commonly known as "The Carnegie Way" to enhance its profitability and drive growth for the company in the long run. It is well ahead of its initial guidelines of procuring $435 million through these initiatives. This self-controlled strategy has earned about $495 million for the company so far for this year.
In addition, the company expects these initiatives from project improvements and implementation to strengthen its earning power going forward. Also, this self-controlled strategy along with its lower energy, repair and maintenance costs should help the company to return handsome value to its shareholders in fiscal 2015 and beyond.
Value creating projects to accelerate its growth pace
United States Steel is continually exploring and implementing new projects. The company expects these new projects to add incremental improvements and thereby generate positive results for the company. It expects these projects to bring improvements in manufacturing process, supply chain and logistic and SG&A reduction. These new projects have already generated about $85 million in the previous reported quarter.
For example, its Clairton Work coal making operation generated nearly $7.0 million and its Gary works produced approximately $9.0 million enhancements. These advances resulted from delivery of coal blends at its Clairton Works and reduced product yield loss on the 84-inch pickle line at Gary Works.
The implementation of such initiatives creates million-dollar opportunities for the company going forward. It sees plenty of upside potential with its projects that could generate positive returns. It has more than thousands of similar projects running across the world, and it remains focused to implement these initiatives. This should positively augment its results in the future and create value for the shareholders.
Implementation of new management structure
United States Steel is aggressively implementing a new management structure that focuses on three primary goals. First, it is committed to enhancing its relationship with its customers, delivering more innovative and profitable products and solutions to the markets. Second, the company remains on track to effectively integrate Carnegie Way initiatives to its operating units. This also includes reliability-centered maintenance, process technology excellence and continues commitment to safety and quality. Last but not least, it is concentrating on continuous earnings growth and value creation for shareholders by developing clear and more concentrated accountability for its business leaders.
The management believes that this new structure will provide a greater degree of accountability. It should also help the business leaders have in-depth concentration necessary to drive execution of their operations. This new structure focuses more on profitability than productivity and therefore should become a steppingstone for the company going forward. The company plans to share more information on this new structure with the development in the future.
Apart from these, the company is seeing outstanding performance for its flat rolled division. Strong cost controls in the company's flat-rolled division, including lower maintenance costs and Project Carnegie savings, are helping the company improvise its performance. These strategic moves have yielded about $150 million in benefits in the last reported quarter.
Also, improved pricing, mix benefit, higher shipment and lower maintenance costs are expected to increase its performance in the fourth-quarter fiscal 2014.
Ending remarks and valuation
United States Steel is making significant progress with its transformation model. Also, it is applying a new management structure with more focus on profitability than on production. These growth initiatives should enhance its growth in the future and create value for shareholders going forward.
The stock is pretty cheap with trailing P/E of 46.58 and forward P/E of 8.56. This indicates that the stock has plenty of upside potential in the future. Moreover, it has PEG ratio of just 1.39 for the next five years that continues to support its growth in the long-run. The analyst expects its earnings to grow at CAGR of 6.50%, greater than average industry CAGR of 3.89% for the next five years. This highlights strong growth prospects attached. Also, its short term returns are even more promising with earnings growth of 411.70% this year.
