Mechel's Profit Dips Sharply - Analyst Blog
22 Giugno 2012 - 10:00AM
Zacks
Russian miner Mechel
OAO (MTL) recorded consolidated net income of $218 million
in the first quarter of 2012, down 29.5% from last year’s $309.2
million. Revenues in the quarter came in at $3 billion, up modestly
from $2.9 billion posted in the year-ago period.
The company’s margins took a sharp hit as operating income dropped
30% from last year to $314 million and adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA) declined
18.2% to $463.4 million in the quarter.
Segment Performance
Mining: The segment’s revenues from external
customers in the quarter were $932.7 million, an increase of 12.6%
over $828.1 million reported in the year-ago period. Operating
income was $275.6 million, 5.6% lower than $292.1 million posted
the first quarter last year. The adjusted EBITDA of the mining
segment dropped 0.9% year over year to $358.1 million in the
quarter.
The mining segment remained pressured in the quarter as it faced
difficult economic conditions. The company had to briefly close
several mines in Southern Kuzbass and this contributed to depressed
margins. However, Mechel was able to maintain its coal product
sales at high levels along with improving the sales of iron ore
concentrate.
The company continued the development of the Elga mine and laid
rail tracks towards the deposit. It is now constructing a seasonal
washing plant at the site for accelerating the production and sales
of coking coal concentrate. The plant is scheduled for completion
this summer and Mechel expects to ship out its first load of coking
coal concentrate from the mine once construction is complete.
Steel Mining: Revenues from the Steel Mining
segment, which made up 56% of total revenues, decreased 6.1% from
the last year to $1.6 billion. The segment reported an operating
income of $10.7 million versus last year’s operating income of
$125.6 million, a massive drop of 91.5%.
Ferroalloy: Ferroalloy segment sales totaled
$124.7 million in the quarter, up 0.5% from last year, and
constituted 4% of consolidated revenues. The segment recorded an
operating loss of $33.8 million in the quarter as against an
operating income of $11.9 million last year.
Power: The Power segment generated about 8% of
revenues, totaling $243.4 million in the quarter, a year-over-year
jump of 8.1%. The segment’s operating income dropped 25.8% to $24.9
million in the quarter from $33.5 million last year. The segment’s
revenues jumped due to the heating season and improvement in
capacity utilization. However, an increase in the cost of
electricity and other commercial costs led to a fall in
margins.
Financial Position
Capital expenditure in the quarter amounted to $276.2 million, of
which $147.8 million was spent in the mining segment, $114.4
million in the steel segment, $11.8 million in the ferroalloy
segment and $2.2 million in the power segment. Total debt was
around $9.6 billion, while cash and cash equivalents stood at
$439.7 million at the end of the quarter. The company’s position is
precarious as far as debt is concerned, since the debt on its books
is almost four times its market capitalization.
Our Take
Mechel is a leading domestic steel and coal producer with a strong
position in key businesses, including production of specialty steel
and alloys. The company has the largest coal reserve base in Russia
and is mainly focusing on growth and cost-cutting measures. Mechel
competes with ArcelorMittal (MT), among
others.
The company owns and controls essential infrastructure, including
ports, rolling stock and power plants, which provide access to the
export markets. However, as mentioned earlier, Mechel could be
handicapped because of its high debt and interest burden, and might
not be able to keep up with its huge capital spending program.
We currently have a long-term Underperform recommendation on
Mechel, which is in agreement with a short-term Zacks #5 Rank
(Strong Sell).
ARCELOR MITTAL (MT): Free Stock Analysis Report
MECHEL OAO ADS (MTL): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Grafico Azioni Arcelor Mittal (NYSE:MT)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Arcelor Mittal (NYSE:MT)
Storico
Da Lug 2023 a Lug 2024