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Must-know: ArcelorMittal’s 2Q results

Mohit Oberoi

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

(Continued from Part 1)

ArcelorMittal’s 2Q results

ArcelorMittal came up with its second quarter results on August 1, 2014. It reported net income of $ 0.1 billion compared to a loss of $ 0.8 billion in the same quarter last year. In this article we’ll look at the key components of ArcelorMittal’s second quarter results.

Key takeaways of Q2 results 

ArcelorMittal reported a 4.6% increase in net sales. The previous chart shows the select financial data of the second quarter results. As you can see, the net sales in second quarter stood at $20.7 billion. This increase was largely led by an increase in shipments which stood at 21.5 million tons. There was also a better product mix, which means focus on value added products that which have higher selling prices. This was also a reflection of the improvement in its core markets of North America and Europe. We’ll discuss the performance of each segment as we move along.

Focus on cost rationalization benefits 

ArcelorMittal has been running a cost rationalization program under the name “Management gains program.” Under this program, it has a relentless focus on cutting various fixed and variable costs. Another key feature is the reduction of net debt to $15 billion in the medium term. In the second quarter the net debt reduced by $1.1 billion and reached $ 17.4 billion. This reduction in debt has led to lower interest costs and higher profits for ArcelorMittal this quarter.

What drove down second quarter earnings?

Due to the adverse weather conditions earlier this year in parts of the U.S, a lot of steel companies like ArcelorMittal (MT) and U.S. Steel Corp. (X) were negatively impacted.  This led to the dual impact of production losses at the affected plants and also increased maintenance costs at these plants. This drove down the profitability for ArcelorMittal. Another factor that led to lower profitability was the falling iron ore prices, which impacted the mining business. There was also a litigation settlement of $90 million that further impacted the profits.

It’s important to note that Nucor (NUE) and Reliance Steel & Aluminum are other competitors in the industry. The SPDR S&P Metals and Mining ETF (XME) is also an alternate way to get exposure to the U.S. steel industry.

Continue to Part 3

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