PITTSBURGH (CN) - Piling onto United States Steel Corp. after a $1.4 billion earnings loss, shareholders claim in a federal class action that years of rosy reports were pure fiction.
The Central Laborers' Pension Fund is at the helm of the complaint filed Monday in Pittsburgh where the company co-founded in 1901 by Andrew Carnegie is headquartered.
U.S. Steel had that captain of industry in mind when it embarked on a 2013 strategic initiative called the Carnegie Way to overcome turmoil in the market.
The investors say U.S. Steel was confronting a perfect storm of challenges, including “lower oil prices, lower steel prices, a stronger U.S. dollar, global overcapacity, and an increase in foreign imports flooding the market.”
Still U.S. Steel reported last year that its efforts had been successful.
U.S. Steel reported $745 million in benefits associated with the Carnegie Way, but the complaint says this purported “focus on growth and right-size operations ... was a facade.”
“In reality, U.S. Steel’s promising financial results were the result of defendants causing U.S. Steel to engage in ill-advised cost-cutting and underspending on capital assets that pushed off necessary repairs and upgrades,” the complaint states. “This not only disguised the company’s true financial and operational condition, but jeopardized its ability to capitalize on an improving steel market.”
Investors say the curtain came down earlier this year when favorable U.S. trade cases against foreign imports triggered a more than 50 percent surge on the average price of U.S. hot-rolled steel coil.
Hot-rolled steel coil makes up 28 percent of U.S. Steel’s largest segment — flat-rolled products, according to the complaint.
Instead of translating this price increase into domestic-sales profits, however, U.S. Steel reported poor financial results on April 25, 2017, “including a significant decline in the company’s flat-rolled segment,” according to the complaint.
Suddenly the corporate executives who had been taking millions in incentive compensation for their strong performances announced that U.S. Steel “would need to invest in asset revitalization, exceeding $300 million for 2017 and more than $1 billion over the next several years,” according to the complaint.
The class notes that U.S. Steel’s stock plunged more than 26 percent, or $8.33 per share, on April 26, “instantly wiping out more than $1.4 billion in once valuable shareholder equity.”
“Worse yet, the company has been named as a primary defendant in a costly and expensive-to-defend consolidated class action lawsuit brought by U.S. Steel shareholders for alleged violations of the federal securities laws,” the complaint continues.
Alleging breach of fiduciary duty and violations of the Exchange Act, the investors note that CEO David Burrett; his predecessor, Mario Longhi, and the company’s other executives “have not fared nearly so badly.”
“In 2016, defendants collectively pocketed more than $17 million in compensation not justified by U.S. Steel’s performance while under their stewardship,” the complaint states. “These payments unjustly enriched defendants at the company’s expense.”
With the board unwilling to hold these directors accountable, the class wants the court to award restitution and impose a constructive trust.
The class is represented by Brett Stecker with the Weiser Law Firm in Berwyn, Pa.
Representatives for U.S. Steel Corporation have not returned a request for comment.
Nearly six months after the devastating first-quarter earnings report, U.S. Steel’s share price still has not rebounded to its early April high of $34.72.
The stock sank to below $20 in May and was hovering at $26.19 at press time Friday.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.