Steel giant ArcelorMittal (MT) reported net income of $52 million or 3 cents per share in the second quarter of 2014, contrary to a net loss of $0.8 billion or 44 cents a year ago.
Revenues went up 2.5% year over year to $20.7 billion in the reported quarter. Sales increased year over year due to improved steel shipments and higher marketable iron ore shipments. Total shipments rose 2.9% year over year to 21.5 million metric tons in the quarter.
Segment Review
ArcelorMittal has changed its organizational structure, effective Jan 1, 2014, to reduce organizational complexity and layers, simplify processes, and take advantage of the scale effect within the regions. The new reporting segments now include NAFTA, Brazil, Europe and Asia Africa and CIS (ACIS) with the Mining segment remaining unchanged.
NAFTA: Crude steel production increased 7.6% year over year but decreased 1.7% sequentially to 6.2 million tons in the quarter. The sequential decline was due to planned blast furnace reline at Indiana Harbor No.7 and unplanned maintenance downtime at Cleveland. Average selling prices went up 1.8% year over year to $856 per ton. Sales increased 13.1% year over year and 10% sequentially to $5,423 million. The sequential increase in sales was attributed to higher shipments and higher average steel selling prices.
Brazil: Crude steel production fell 7% year over year and 1.3% sequentially to 2.4 million tons in the quarter. Sales decreased 7.1% year over year but rose 3.2% sequentially to $2.4 billion in the quarter. The sequential increase in sales was due to higher average steel selling prices. Average selling prices went down 2.6% year over year to $934 per ton but rose 4.4% sequentially.
Europe: Crude steel production increased 3.9% year over year and was almost flat sequentially at 10.9 million tons in the quarter. Sales declined 0.3% year over year but increased 1.9% sequentially to $10.5 billion due to higher steel shipment volumes. Average steel selling prices declined 1% year over year to $799 per ton.
Asia Africa and CIS (ACIS): Sales rose 6.9% from the year-ago quarter and 14.6% from the previous quarter to $2.3 billion. Improved volumes and higher average steel selling prices led to the sequential increase in sales. Production recorded a 2.2% year-over-year decline and a 5.5% sequential increase to 3.6 million tons. The sequential increase in production was due to higher production in Ukraine and Kazakhstan, partly offset by lower production in South Africa following the reline of the Newcastle blast furnace, which commenced during the quarter. Average selling prices were $592 per ton compared with $628 per ton in the year-ago quarter.
Mining: Iron ore production rose 10.7% year over year and 11.7% sequentially to 16.6 million tons in the reported quarter due to higher production from the Canadian mining operations which were hurt by harsh winter conditions in the previous quarter. Coal production declined 10% year-over-year and was flat sequentially at 1.8 million tons. Revenues rose 2.4% year over year and 10.1% sequentially to $1,383 million.
Balance Sheet
Cash and cash equivalents (including restricted cash) amounted to $4.4 billion as of Jun 30, 2014, compared with around $6.9 billion as of Jun 30, 2013. The company’s long-term debt stood at to $18.1 billion as of Jun 30, 2014 compared with $18.9 billion as of Jun 30, 2013.
New Developments
In Jun 2014, ArcelorMittal completed the divestment of its 78% stake in European port handling and logistics company ATIC Services S.A. (ATIC) to HES Beheer for €155.4 million (roughly $212 million). With this transaction, HES Beheer now owns 100% stake in ATIC where it previously held 22% stake. The transaction reflects ArcelorMittal`s strategy of selective deposal of non-core assets.
On Jul 29, 2014, ArcelorMittal and Billiton Guinea B.V. inked a sale and purchase deal for the acquisition by ArcelorMittal of a 43.5% stake in Euronimba Limited (Euronimba), which holds a 95% indirect stake in the Mount Nimba iron ore project in Guinea. The Project comprises a 935 million ton direct shipped ore resource with an average grade of 63.1% Fe. ArcelorMittal also entered into a sale and purchase pact with Compagnie Française de Mines et Metaux (a member of the Areva group) for the purchase of its 13% interest in Euronimba. The closing of these two deals would give ArcelorMittal a 56.5% stake of Euronimba.
Guidance
ArcelorMittal now expects earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of $7 billion for 2014 (down from $8 billion expected earlier) as a result of weaker than expected iron ore price. The company still expects global apparent steel consumption (ASC) to increase roughly 3%—3.5% in 2014.
Steel demand growth in Europe remains strong and the company has increased its forecast for ASC growth in 2014 to 3%—4% and, in the U.S, it has raised the projection to a range of 5%—6%. In China, the company foresees signs of stabilization due to the government’s targeted stimulus, and sees steel demand in the range of 3%—3.5%.
ArcelorMittal expects net interest expense to be about $1.6 billion in 2014 compared with $1.8 billion in 2013 mainly due to lower average debt.
Capital expenditure is expected to be roughly $3.8—$4 billion, a modest rise over 2013, with some of the expected expenditure from 2013 rolling into 2014 as well as the continuation of the phase II Liberia project.
ArcelorMittal does not plan to ramp-up any major steel growth capital expenditure or increase dividends until the medium term $15 billion net debt target has been achieved and market conditions improve.
ArcelorMittal currently has a Zacks Rank #3 (Hold).
Other companies in the steel industry with favorable Zacks Rank include Grupo Simec S.A.B. de C.V. (SIM), Olympic Steel Inc. (ZEUS), and ThyssenKrupp AG (TYEKF). While Grupo Simec sports a Zacks Rank #1 (Strong Buy), Olympic Steel and ThyssenKrupp carry a Zacks Rank # 2 (Buy).
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