Longhi out as U.S. Steel CEO
Mario Longhi, whose Carnegie Way efficiency initiative failed to staunch U.S. Steel’s steady tide of red ink, is retiring, but his replacement as the company’s chief executive is raising concerns among analysts who question whether he’s the right fit for the job.
New president and CEO David Burritt lacks the industry experience that many analysts say is necessary if the Pittsburgh steelmaker is to remedy operational problems that continue generating losses despite favorable industry conditions.
Mr. Burritt was the chief financial officer of Caterpillar until 2010 and joined U.S. Steel in the same position in 2013, the year Mr. Longhi was elevated to president and CEO.
U. S. Steel announced
Wednesday that Mr. Burritt took over for Mr. Longhi on Monday and that Mr. Longhi will remain an employee during a transition before retiring.
“[Mr. Burritt] would not be the guy I would pick for an operating guy on the steel side. And that’s what they need,” said New York-based metals analystCharles Bradford.
Although U.S. Steel and Mr. Longhi said the retirement was part of a five-year plan he had when he joined the company in 2012, it comes two weeks after a stunning $180 million firstquarter loss slashed 27 percent off of U.S. Steel’s stock price in one day.
The company blamed the loss on operational issues and announced plans to spend more than $1 billion over the next three or four years to revitalize its mills, including work at the steel making shop at the Edgar Thomson plant in Braddock and a rolling mill at the Irvin plant in West Mifflin.
Analystssaid that while the makeover is long overdue, it will crimp U.S. Steel’s earnings power while steel prices and demand are relatively good and it could limit the potential benefits the company could realize from President DonaldTrump’s pledge to supportthe industry.
Mr. Burritt, a financial expert, will oversee the ambitious $1 billion-plus revitalization project.
“It is a surprise that the board didn’t pick a rolling mill metallurgist or an operations guy or technologist familiar with the specific technical challenges that the last few months of results seem to reflect,” said John Tumazos, an analyst based in Holmdel, N.J.
U.S. Steel has recorded only one profitable year since the Great Recession of 2008 — it earned $102 million in 2014 — and lost $440 million in 2016.
The red ink continued to flow despite Mr. Longhi’s signature initiative, the Carnegie Way. The efficiency drive generated $745 million in savings last year and $815 million in2015, according to U.S. Steel. But those savings couldn’t offset longstanding problems that analysts said predated Mr. Longhi’s tenure.
“He took over an organization that was rife with steel mills that are extremely old compared to its competitors,” said Axiom Capital Management analyst Gordon Johnson. “I think with Carnegie Way he tried to offset that dynamic.”
Analysts say other problems Mr. Longhi inherited included disastrous acquisitions of Canadian steelmaker Stelco and Texas tube maker Lone Star Technologies, and a costly, botched revamp of the software system used to run many of U.S. Steel’s functions.
“I don’t think any of this frankly is Mario’s fault,” Mr. Bradford said.
To the extent that Mr. Longhiis to blame, “It’s probably [Mr.] Burritt’s fault as much as Mario’s,” Mr. Bradfordsaid. John Goodish, who retired as U.S. Steel’s chief operating officer in 2010 after more than a 40-year career, said Mr. Longhi’s retirement was “longoverdue.”
“What ailed this company is more than the CEO,” Mr. Goodish wrote in an email to the Post-Gazette. “Mario did not operate in a vacuum. [Mr. Burritt]was involved in every oneof those decisions.”
Mr. Goodish said given the cyclical nature of the steel business, “to have an upturn and not be able to harvest the marketis irresponsible.”
“None of the top executives have a passion for the company and their jobs,” Mr. Goodish wrote.
Mr. Longhi’s retirement was announced after the market closed. U.S. Steel shares finished Wednesday at $20.97, up 18 cents. They are off 36 percent this year.