MT Arcelor Mittal New

Steel giant ArcelorMittal (MT) posted earnings of 1 cent per share in first-quarter 2012, down 98.6% from 69 cents per share in the year-ago quarter. The results missed the Zacks Consensus Estimate of 22 cents.

Sales edged up 2.3% to $22,703 million from $22,184 million in the year-ago quarter, beating the Zacks Consensus Estimate of $22,404 million. Greater steel shipments led to increased sales in the quarter.

Steel shipments inched up 1.2% to 1.2 million tons. Although demand in North America continued to grow, the economic conditions in Europe remained challenging. The company announced the extended idling of a number of facilities in line with its strategy of meeting demand from its more competitive sites.

Segment Review

Flat Carbon Americas: Revenues grew 6.7% year-over-year to $5,270 million. Sequentially, sales jumped 4.8% on increased average steel selling prices and steel shipment volumes. Shipments increased by 2% year over year and 3.9% sequentially to 5,672 million tons due to higher North American operations, which were partially offset by lower shipments in Brazil.

The segment’s earnings before interest, taxes, depreciation and amortization (EBITDA) stood at $632 million in the reported quarter, up from $528 million in the year ago quarter and $237 million in the fourth quarter of 2011. The sequential increase in EBITDA was on account of higher pricing and shipments and the positive impact of changes to the employee benefit plans at Dofasco.

Flat Carbon Europe: Segment sales amounted to $7,719 million, down 1.2% form $7,812 million in the year ago quarter and up 10.2% from the previous quarter. Higher steel shipments led to the sequential increase, which were offset by lower average steel selling prices. Steel shipments in the reported quarter were 7,461 million tonnes, inching up 1% from 7,384 million tons in the comparable year-ago quarter and rising 20.6% sequentially. Higher domestic demand and end of destocking activity led to the sequential increase.

EBITDA was $130 million compared with $471 million in the year-ago quarter and $26 million in the previous quarter. The sequential increase was led by higher steel shipment volumes and lower cost, partially offset by lower prices.

Long Carbon Americas and Europe: Sales were $5.763 million, up 2.1% from $5,889 million in the first quarter of 2011. Shipments were $5,738 million tons in the quarter, down 2.3% from 5,872 million tons in the first quarter of 2011 and 1.8% from 5,846 million tons in the fourth quarter of 2011.

EBITDA was $437 million, down 9% from the year-ago quarter and up 29.3% sequentially.

Asia Africa and CIS (AACIS): Sales in this segment increased 8.4% year over year to $2,787 million and 2% sequentially. The sequential increase reflects higher steel shipments, offset by lower average steel selling prices. Shipments increased both on a year-over-year basis and sequentially to 3,353 million tons. The sequential increase of 9.4% was led by improved demand in Africa.

EBITDA was $160 million compared with $254 million in the year ago quarter and $238 million in the previous quarter. The sequential decrease demonstrates an improvement from African operations which were partially offset by the negative price-cost squeeze in CIS operations.

Distribution Solutions: Sales were $4,431 million, up 4% from $4,261 million in the year-ago quarter and down 9.1% form the previous quarter. The sequential decline in sales was due to lower steel shipment volumes and lower average steel selling prices. Shipments were 4.589 million tonnes, up 9.2% from 4,202 million tons in the year-ago quarter and down 7.4% from 4,957 million tons in the fourth quarter of 2011. EBITDA was $35 million, down 72.4% year over year.

Mining: Iron ore production increased 12.1% year over year to 1,271 million tonnes in the reported quarter due to higher production from Liberia. However, production declined sequentially 12.6% due to lower production from Canada and Serra Azul led by seasonal factors. Coal production increased 9.5% to 2.1 million tons from to 1.9 million tons in the year ago quarter and decreased 4.9% from 2.2 million tons in the previous quarter.

EBITDA was $478 million, down 21.3% from $607 million a year ago and 38.6% from $779 million in the fourth quarter of 2011. The sequential decline represented lower marketable shipments and lower average selling prices.

Balance Sheet

Cash and cash equivalents (including restricted cash and short-term investments) amounted to $4.9 billion as of March 31, 2012, compared with $3.9 billion as of December 31, 2011. As of March 31, 2012, the company’s net debt increased by $1.1 billion to $23.6 billion, versus $22.5 billion as of December 31, 2011. The increase was led by decreased cash flows from operations, foreign exchange losses and dividends payments, partly offset by inflow from the partial Erdemir divestment.

Divestment

ArcelorMittal Luxembourg entered into an agreement, in April 2012, to divest its 23.48% interest in Enovos International SA to a fund managed by AXA Private Equity for a purchase price of EUR 330 million. The transaction is expected to close by June 2012 and is in sync the company’s strategy to divest its non-core assets.

Outlook and Recommendation

The company expects steel shipments in the second quarter of 2012 to be at similar levels with the first quarter. The Mining segment is expected to benefit from seasonally higher iron ore shipments. The company forecasts that all of its segments will demonstrate improved underlying profitability in the second quarter.

The company has reaffirmed its EBITDA guidance and expects that EBITDA for the first half of 2012 will be higher than the first half of 2011. ArcelorMittal anticipates its own iron ore and coal production to increase by approximately 10% in 2012 while capital expenditure is expected to be in the range of $4-$4.5 billion for the year. Net debt is expected to reduce in the second quarter through improved operating cash flows and further divestment of non-core assets.

We currently have a long-term Underperform recommendation on ArcelorMittal. The company, which competes with U.S. Steel Corp. (X) and Tata Steel Limited, maintains a Zacks #5 Rank, which translates into a short-term (1 to 3 months) Strong Sell rating.

 
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