Steel giant ArcelorMittal (MT) reported diluted
net earnings of 69 cents per share in the first quarter of 2011,
above the Zacks Consensus Estimate of 47 cents as well as last
year’s 42 cents per share.
Total steel shipments in the first quarter of 2011 were 22.0
million metric tonnes compared with 21.0 million metric tons in the
year-ago quarter.
Revenue
Quarterly revenues increased 27.3% year over year to $22.2
billion from $17.4 billion in the year-ago quarter and increased
7.2% sequentially. Sales were higher over the previous quarter
primarily due to higher shipment volumes (+4%). However, the
results were slightly below the Zacks Consensus Estimate of $22.8
billion.
Costs
Depreciation expense of $1.1 billion in first-quarter 2011 was
flat versus the prior-year quarter.
Impairment losses were $18 million versus $381 million in the
previous quarter and the company did not incur any impairment loss
in the year-ago quarter.
Operating income in first-quarter 2011 was $1.4 billion compared
with an operating income of $0.6 billion in the year-ago quarter.
The operating performance in the quarter reflected a positive
impact from a non-cash gain of $336 million related to the reversal
of provisions for inventory write-downs, triggered by improved
market conditions, and reversal of provisions for litigations.
The operating performance in the quarter also included a
non-cash gain of $119 million relating to unwinding of hedges on
raw material purchases.
Foreign exchange and other net financing costs were $667 million
in the first quarter of 2011 compared with $192 million in the
prior-year quarter.
Segment Review
As from January 1, 2011, ArcelorMittal reported the results of
its mining operations as a separate operating segment. The
segmental change has been undertaken in order to reflect changes in
the company’s approach to manage its mining operations, as required
by IFRS.
Flat Carbon Americas:
Sales in the segment were $4.9 billion in the first quarter of
2011, up 8.0% sequentially, primarily due to higher steel shipments
(+2.4% sequentially).
Flat Carbon Americas crude steel production amounted to 6.1
million tons in the quarter, up 7.6% sequentially and 6.8% year
over year. The company expected demand to be higher leading to
increased production across all operating units excluding the
company’s South American operations, where production remained
constrained resulting from disruptions in the local coal handling
port.
Shipments were 5.6 million tons, up 2.4% sequentially,
reflecting increased demand, excluding the company’s South American
operations.
EBITDA in the first quarter improved to 29.8% to $528 million
from $158 million in the previous quarter and $361 million in the
year-ago quarter.
Flat Carbon Europe: Sales in the
segment were $7.8 billion in the quarter, up 33.0% versus the
year-ago period and 14.6% on higher average steel selling prices
(2.3%) and higher steel shipments (12%).
Flat Carbon Europe crude steel production amounted to 7.6
million tons in the quarter, up 3.0% year over year and 8.9%
sequentially. Improved demand led to increased production in all
divisions.
Shipments were 7.4 million tons, up 12% sequentially driven by
higher demand particularly in Northern Europe. Shipments increased
7.7% on a year-over-year basis. EBITDA in the quarter was $471
million, down 13.3% sequentially.
Long Carbon Americas and
Europe: Sales in the segment were
$5.9 billion in the quarter, up 3.1% sequentially based on higher
average steel selling prices (7.8%) and improved steel shipments
(3.1%). Moreover, sales jumped 23.6% over the comparable year-ago
quarter.
Long Carbon Americas and Europe crude steel production reached
6.1 million tonnes during first-quarter 2011, up 5.6% year over
year and 13.8% sequentially. Production increased on a sequential
basis in both Europe and Americas reflecting rebuild of metal stock
and the end of the seasonal slowdown in Brazil.
Shipments were 5.9 million tons, up 3.1% both sequentially and
year over year.
EBITDA was $480 million, an increase of 52.4% sequentially due
to improved profitability driven by higher average selling prices
and higher volume, partially offset by higher costs.
Asia Africa and CIS
(AACIS): Sales in this segment
increased 20.5% over the prior-year quarter and inched up 1%
sequentially to $2.6 billion during the quarter. Sequentially,
sales increased due to higher average steel selling prices (11.2%)
partially offset by lower shipments.
AACIS segment’s crude steel production was 3.7 million tons, up
2.6% sequentially, primarily due to higher production in the
Company’s South African operations. This was partially offset by
loss of production in the CIS countries driven by operational
issues in Ukraine. Further, production also upped 0.6% year over
year.
Shipments were 3.14 million tons, down 7.4% sequentially,
primarily due to the above-mentioned production constraints and
rebuilding of inventory. Shipments inched down 1.9% over the
year-ago quarter.
EBITDA during the quarter was $254 million, an increase of 18.1%
sequentially, due to a recovery in the company’s South African
operations (reflecting an overall improvement of the domestic
market), and higher average steel selling prices, partially offset
by lower steel shipments and higher cost of coal imported in
Ukraine. On a year-over-year basis, EBITDA increased
14.1%.
Distribution
Solutions: Sales in the segment were
$4.3 billion, flat sequentially, primarily due to higher average
steel selling prices (12.6%), offset by a decrease in steel
shipments (11.6%). Sales surged 22.0% year over year.
Shipments in the segment were 4.2 million tons, a decline of
11.6% compared with 4.8 million tonnes in the last quarter and 3.5%
from 4.4 million tonnes in the year-ago quarter.
EBITDA was $127 million, up 46% sequentially due to higher
selling prices and non-cash gains of $22 million related to the
reversal of certain provisions. EBITDA jumped by more than 100%
over the comparable year-ago quarter.
Balance Sheet
At the end of March 31, 2011, cash and cash equivalents
including restricted and short-term investments were $3.9 billion
versus $6.3 billion at the end of December 31, 2010.
During the quarter, net debt increased by $2.9 billion to $22.6
billion compared with $19.7 billion as of December 31, 2010 due to
the increase in cash used in operations, increase in M&A
related expenditures and $0.4 billion on account of foreign
exchange losses, which was partially offset by the repayment of the
bridge loan by Aperam.
Cash Flow
Net cash used in operating activities was $1.3 billion in the
reported quarter versus cash inflow of $3.6 billion for the
three-month period ended December 31, 2010.
ArcelorMittal and Nunavut Iron
On March 25, 2011, ArcelorMittal and Nunavut Iron Acquisition
Inc. announced the completion of the court-approved plan of
arrangement under the laws of Ontario pursuant to which they
acquired all outstanding common shares of Baffinland.
Spin-off of Stainless Steel Business
(Discontinued operations)
The successful spinoff of the stainless steel business, at
present known as Aperam, took place following shareholders’
approval on January 25, 2011. Accordingly, results of the stainless
steel operations in the first quarter of 2011 and prior periods
have been presented as discontinued operations.
The discontinued operations results for the three-month period
ended on March 31, 2011, amounted to $461 million, including $42
million of the post tax net results, which was contributed by the
stainless steel business prior to the spin off. The balance of $419
million represents a one-time non-cash gain from the recognition
through the income statement of gains/losses relating to the
demerged assets previously held in equity.
Outlook
For the second quarter of 2011, management expects EBITDA to be
approximately $3.0 - $3.5 billion. Steel shipment volumes, average
steel selling prices and EBITDA/ton are expected to increase
sequentially, while capacity utilization levels are expected to
improve to approximately 80%.
Additionally, operating costs are expected to increase
sequentially due to higher raw material prices. The company
also expects mining production and profitability to improve
sequentially in the second quarter.
The company expects working capital requirements to increase in
line with the increased activity levels and prices resulting in
further increase in net debt in the second quarter. The company
expects its full-year 2011 capital expenditure to reach $5 billion,
of which $1.4 billion is estimated to be spent on mining.
Major competitors of ArcelorMittalare United States
Steel Corp. (X) and Tata Steel Limited.
We maintain our Outperform recommendation on ArcelorMittal with
a Zacks #2 Rank (Buy) on the stock.
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