Narrower-than-Expected Loss at ArcelorMittal

Zacks

Steel giant ArcelorMittal (MT) posted net loss of $0.2 billion or 12 cents per share in the third quarter of 2013 versus net loss of $0.7 billion or 42 cents a year ago. Losses reduced year over year on the company’s cost management initiatives.

Barring one-time items (excluding impairment charges), loss was 6 cents per share. It was below the Zacks Consensus Estimate of loss of 7 cents per share.

Revenues declined 0.4% year over year to $19.6 billion in the reported quarter but beat the Zacks Consensus estimate of $19.5 billion. Sales declined due to lower average selling prices. Shipments rose 6% year over year to 21.1 million metric tons.

Segment Review

Flat Carbon Americas: Production increased 10.8% year over year and 13.5% sequentially to 6.3 million tons. The sequential increase was driven by resolution of labor issues at Burns Harbor and operational incidents at Indiana Harbor East and West. Average selling prices went down 5.4% year over year to $804 per ton. Sales went up 1.7% year over year and 2.8% sequentially to $4,921 million due to higher shipments.

Flat Carbon Europe: Revenues from this segment rose 3.7% year over year and decreased 8.2% sequentially to $6,334 million. The sequential decline in sales was attributable to lower steel shipment volumes and narrower average steel selling prices. Average selling prices showed a year-over-year decrease of 6.2% to $803 per ton. Production increased 10.7% on a year-over-year basis but decreased 0.6% sequentially to 7.4 million tons.

Long Carbon Americas and Europe: Revenues dipped 1.1% year over year and 5.3% sequentially to $5,133 million, mainly due to lower volumes and declining average steel selling prices chiefly in the Long Carbon Americas and Tubular businesses. Steel production inched up 1% from a year ago and 0.5% sequentially. Average selling prices slipped 4.8% from the prior-year quarter to $820 per ton.

Asia Africa and CIS (AACIS): Sales dropped 14% from the year-ago quarter and showed a 0.1% decrease from the previous quarter to $2,112 million. Higher steel volumes were offset by lower average steel selling prices, which led to the sequential decline. Production recorded a 0.3% year-over-year decline but increased 0.8% sequentially to 3.7 million tons. Average selling prices were $603 per ton against $658 per ton in the year-ago quarter.

Distribution Solutions: Revenues declined almost 7.8% year over year and 4.8% on a sequential basis to $3,425 million due to lower average steel selling prices and weaker steel shipment volumes. Average steel selling prices was down 3% year over year to $843 per ton.

Mining: Iron ore production rose 4.2% year over year and was almost flat sequentially at 14.9 million tons in the reported quarter. Coal production remained flat both year over year and sequentially at 2 million tons. Revenues climbed 21.4% year over year and improved 18.1% sequentially to $1,595 million.

Balance Sheet

Cash and cash equivalents (including restricted cash) amounted to $4.4 billion as of Sep 30, 2013, compared with $3 billion as of Sep 30, 2012. The company’s long term debt was $18.5 billion as of Sep 30, 2013, against $21.8 billion as of Sep 30, 2012.

Outlook

ArcelorMittal reiterated its outlook for earnings before interest, taxes, depreciation and amortization (:EBITDA) and expects it to be above $6.5 billion for 2013. The company expects that profitability will be driven by 1%–2% increase in steel shipments, about 20% rise in marketable iron ore shipments, and the realized benefits from Asset Optimization and Management Gains initiatives. ArcelorMittal predicted that Asset Optimization will deliver annualized savings of $1 billion, the full impact of which will be realized in 2014.

ArcelorMittal estimates capital expenditures of roughly $3.7 billion in 2013. Due to improved operating cash flows and proceeds from already announced disposals, net debt is likely to decrease in the fourth quarter to about $17 billion. Medium term net debt is anticipated at $15 billion.

ArcelorMittal currently holds a Zacks Rank #3 (Hold).

Other companies in the steel industry with favorable Zacks Rank include Companhia Siderurgica Nacional (SID), Shiloh Industries Inc. (SHLO) and Unites States Steel Corporation (X). While both Companhia Siderurgica and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), United States Steel carries a Zacks Rank #2 (Buy).

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