Mechel Turns to Loss in 2Q - Analyst Blog
04 Ottobre 2012 - 11:00AM
Zacks
Russian miner Mechel OAO (MTL) posted
consolidated net loss of $823 million in the second quarter of
2012, in stark contrast to a profit of $191.9 million registered in
the year-ago quarter. Revenues for the quarter came in at roughly
$3.09 billion, down 11.1% from $3.47 billion in the year-ago
period.
The company registered an operating loss of $470.6 million in the
second quarter compared with an operating income of $476.3 million
a year ago, leading to a contraction in operating margin. Adjusted
earnings before interest, taxes, depreciation and amortization
(EBITDA) declined 37.1% year over year to $385.4 million in the
quarter.
For the first half of 2012, net loss amounted to $605 million
compared with a net income of $501 million in the first half of
2011. Revenues for the first half came in at $6.04 billion, down
5.8% year over year.
In the first half of 2012, operating loss was $156.6 million
compared with an operating income of $924.7 million in the first
half of 2011. Adjusted EBITDA dropped 28% year over year to $848.8
million.
The company’s results were affected by weak environmental
conditions and foreign exchange losses.
Segment Performance
Mining: The segment’s revenues from external
customers in the second quarter were $881.2 million, down 20.2%
from $1,103.8 million in the year-ago period. Operating income was
$192.6 million, 1.3% lower than $474.5 million posted in the second
quarter 2011. The adjusted EBITDA of the mining segment declined
45.9% year over year to $301.9 million in the quarter. For the
first half of 2012, revenues declined 6.1% year over year to
$1,813.9 million.
The mining segment remained under pressure in the quarter due to
reduced demand and lower prices. The company is also making efforts
to restore production capabilities, increase export sales and
diversify its client base.
The company continued the development of the Elga mine and a
three-million tons per annum seasonal coal washing plant was
launched with commercial scale coal production and processing
scheduled to commence in 2013. The company also resumed operations
at its Sibirginsk mine.
Steel Mining: Revenues from the Steel Mining
segment, which made up 61% of total revenues, decreased 7.9% from
$1.9 billion a year ago. The segment reported an operating loss of
$471 million versus last year’s operating income of $36.8 million.
For the first half of 2012, revenues were $3.54 billion, down 7.1%
year over year.
Ferroalloy: Ferroalloy segment sales totaled
$132.4 million in the quarter, up 0.7% from last year, and
constituted 4% of consolidated revenues. The segment recorded an
operating loss of $135.3 million in the quarter as against an
operating loss of $1.1 million last year. For the first half of
2012, sales increased 0.6% to $257.1 million.
Power: The Power segment generated about 6% of
revenues, totaling $174.7 million in the quarter, a year-over-year
decline of 1.2%. The segment’s operating loss was $56.2 million in
the quarter, down from a loss of $0.2 million last year. For the
first half of 2012, revenue increased 4% year over year to $418.1
million.
Financial Position
Capital expenditure for the first half of 2012 amounted to $577.7
million, of which $335.6 million was invested in the mining
segment, $208.3 million in the steel segment, $28.0 million in the
ferroalloy segment and $5.8 million in the power segment. As of
June 30, 2012, total debt was at $8.8 billion while cash and cash
equivalents amounted to $150.7 million.
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.
The company retains a short-term Zacks #4 Rank (Sell). We currently
have a long-term (more than 6 months) Neutral recommendation on the
stock.
ARCELOR MITTAL (MT): Free Stock Analysis Report
MECHEL OAO ADS (MTL): Free Stock Analysis Report
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