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ArcelorMittal Posts Bigger Q1 Loss, Sales Beat Estimates - Analyst Blog

Steel giant ArcelorMittalMT posted a loss in the first quarter of 2015 due to lower iron-ore prices, a stronger U.S. dollar and surge of imports in the U.S.

The company reported net loss of $728 million or 41 cents per share in the first quarter, which widened from a loss of $205 million or 12 cents per share in the year-ago quarter. The loss per share was also wider than the Zacks Consensus Estimate of a loss of 7 cents.

Revenues went down 13.5% year over year to $17.1 billion in the reported quarter, marginally beating the Zacks Consensus Estimate of $17 billion. Sales declined 8.6% sequentially due to lower steel selling prices, seasonally lower market priced iron ore shipments and lower iron ore prices, partly offset by increased steel shipments. Total steel shipments for the quarter were 21.6 million metric tons compared with 21 million metric tons in the year-ago quarter.

EBITDA was $1.4 billion in the first quarter, down around 21.4% year over year.

ArcelorMittal's shares fell roughly 5% to close at $10.26 on May 7.

Segment Review

NAFTA: Crude steel production decreased 5.6% year over year and 3.8% sequentially to 5.9 million tons in the quarter due to weaker demand. Steel shipments in the quarter decreased 5.9% sequentially and 2.7% year over year to 5.5 million tons. The sequential decline was due to a 7.9% decline in flat product steel shipment volumes because of weaker demand resulting from a strong inventory destock.

Sales decreased 7.5% sequentially and 3.1% year over year to $4.8 billion. The sequential fall was due to lower steel shipments and a drop in average steel selling prices. Average steel selling price for flat products and long products fell 3.1% and 8%, respectively, from the sequentially prior quarter.

Brazil: Crude steel production increased 19.1% year over year and 4.3% sequentially to 2.9 million tons in the quarter. Shipments fell 6.5% sequentially to 2.7 million tons due to 7.8% decline in flat product steel shipment volumes and 4.8% decline in long product steel shipment volumes mainly as a result of weak demand in Brazil and Argentina.

Sales fell 10.1% year over year and 16.6% sequentially to $2.1 billion in the quarter. The sequential decline in sales was due to lower steel shipments. Average selling prices for flat and long products decreased 11.2% and 5.2%, respectively, impacted by a weaker Brazilian real and lower international slab prices.

Europe: Crude steel production increased 4.1% year over year and 5.6% sequentially to 11.3 million tons in the quarter. Sales declined 16.7% year over year and 4.7% sequentially to $8.6 billion due to lower average steel selling prices. Average steel selling prices declined 21.7% year over year to $633 per ton.

Asia Africa and CIS (ACIS): Sales declined 14.3% from the year-ago quarter and 12.5% from the previous quarter to $1.7 billion owing to reduced steel shipment volumes and a decrease in average steel selling prices. Production came in at 3.6 million tons, recording a 5.6% year-over-year and 2.4% sequential increase.

The sequential increase was due to increased production in South Africa following the ramp up at Newcastle blast furnace following the completion of the reline works in Dec 2014. Average selling prices were $507 per ton compared with $567 per ton in the year-ago quarter.

Mining: Iron ore production increased 5.4% year over year but declined 7% sequentially to 15.6 million tons in the reported quarter. The sequential decrease was due to seasonally weaker performance in Canada and Brazil, partly offset by improved production in Liberia. Coal production declined 11.1% year over year and 8% sequentially to 1.6 million tons. Revenues decreased 39.6% year over year and 28.4% sequentially to $758 million.

Balance Sheet

Cash and cash equivalents (including restricted cash) amounted to $2.8 billion as of Mar 31, 2015, compared with around $5.1 billion as of Mar 31, 2014. The company's long-term debt stood at about $17 billion as of Mar 31, 2015, compared with $18.2 billion as of Mar 31, 2014.

New Developments

On Apr 30, 2015, ArcelorMittal signed a $6 billion revolving credit facility. The facility, which will replace the $2.4 billion revolving credit facility agreement dated May 6, 2010 and the $3.6 billion revolving credit facility agreement dated Mar 18, 2011, will be used for the general corporate purposes. The facility offers ArcelorMittal improved terms over the former facilities and extends the average maturity date by roughly two years.

Guidance

ArcelorMittal expects earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of $6 billion to $7 billion for 2015.

The company expects global apparent steel consumption (ASC) to rise by about 0.5%-1.5% in 2015. Pick-up in European manufacturing activity will support ASC growth of 1.5%-2.5% this year. Steel shipments are expected to grow in the range of 3% to 5% in 2015 despite risks to the global demand, given the company's specific geographical and end-market exposures.

The company expects net interest expense of about $1.4 billion for 2015. The company reduced capital expenditure outlook to $3 billion for 2015 due to the benefits of foreign exchange as well as the deferral of some investment projects.

ArcelorMittal continues to expect positive free cash flow in 2015 and to achieve progress towards the medium term net debt target of $15 billion.

ArcelorMittal currently has a Zacks Rank #4 (Sell).

Stocks to consider in the steel and related industries include Evraz Highveld Steel & Vanadium Ltd. HGVLY , Olympic Steel Inc. ZEUS and MRC Global Inc. MRC . All of these have a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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