Must-know: Performance of European operations in the 2Q

Market Realist

Overview: ArcelorMittal was disappointed with its 2Q results (Part 3 of 9)

(Continued from Part 2)

European operations in the 2Q

Europe is the largest segment for ArcelorMittal. As a result, it has the prime importance in its overall ecosystem. The Euro zone was hit by the sovereign debt crisis and the economies in that region went into recession. The European market has shown signs of resilience over the past several quarters. All major economies like the United Kingdom, Germany, and Spain have shown improvements in demand indicators. Next we’ll look at the second quarter results for this segment.

The second quarter results of European operations

The second quarter net sales was almost flat at $10.5 billion. While the steel shipments increased by ~2%, it was offset by the marginal decline in average selling prices. However, the net income came in sharply higher than the second quarter of last year. This was driven largely by a restructuring charge of $164 million last year. The depreciation expense is also down because the company has increased the useful life of some of its assets.

Why Europe’s results are expected to be lower in next quarter

ArcelorMittal’s management has expressed that the next quarter earnings might not be as high as the current quarter. The negative seasonality in the third quarter in Europe and planned maintenance activities at some of ArcelorMittal facilities remain the key reasons for this. This is a key negative for ArcelorMittal in the next quarter because Europe accounts for almost half of its revenues.

Now we’ll move to the next key segment for ArcelorMittal, which is its North America free trade agreement (or NAFTA) operations. It’s important to note that ArcelorMittal (MT), U.S. Steel Corporation (X), Nucor Corporation (NUE), and Reliance Steel & Aluminum (RS) are major steel companies in the U.S.

The SPDR S&P Metals and Mining ETF (XME) is one exchange-traded fund (or ETF) that invests in steel companies operating in the U.S. and can be alternatively considered by investors to gain exposure to the steel industry.

Continue to Part 4

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