Steel giant ArcelorMittal MT posted a net income of $179 million or 10 cents per share in second-quarter 2015, higher than a profit of $52 million 3 cents per share recorded a year ago. Earnings per share came ahead of the Zacks Consensus Estimate of a loss of 25 cents.
Revenues went down 18.4% year over year to $16.9 billion in the reported quarter, but beat the Zacks Consensus Estimate of $16.3 billion. Sales declined due to lower average steel selling prices and decline in iron ore references prices, partly offset by higher steel shipments and an increase in market priced iron ore shipments. Total steel shipments for the quarter were 22.2 million metric tons compared with 21.5 million metric tons in the year-ago quarter.
Segment Review
NAFTA: Crude steel production decreased 6.1% year over year and 2.3% sequentially to 5.8 million tons in the quarter. Steel shipments increased 3.3% sequentially but fell 2.6% year over year to 5.6 million tons. The sequential rise was due to a seasonal 2.3% gain in flat product steel shipments and a 5.1% rise in long product shipment volumes.
Sales decreased 4.9% sequentially and 16.2% year over year to $4.5 billion. The sequential fall was due to lower average steel selling prices, partly offset by higher steel shipments. Average steel selling price for flat products and long products fell 8.8% and 6.9%, respectively, from the sequentially prior quarter.
Brazil: Crude steel production increased 23.2% year over year and was almost flat sequentially at 2.9 million tons in the quarter. Shipments rose 4.7% sequentially to 2.8 million tons due to increased slab exports from Brazil and higher tubular shipment volumes.
Sales fell 10.9% year over year but increased 2.2% sequentially to $2.2 billion in the quarter. The sequential increase in sales was due to higher steel shipments. Average selling prices declined 25.6% year over year and 2.5% sequentially.
Europe: Crude steel production increased 6.4% year over year and 2.7% sequentially to 11.6 million tons in the quarter. Sales declined 18.7% year over year and were almost at par sequentially at $8.5 billion as lower average steel selling prices were offset by higher steel shipments. Average steel selling prices declined 22.8% year over year to $617 per ton.
Asia Africa and CIS (ACIS): Sales declined 28.3% from the year-ago quarter and 4.2% from the previous quarter to $1.6 billion owing to lower average steel selling prices, offset in part by higher steel shipment volumes. Production came in at 3.7 million tons, recording a 2.7% year over year and 2.6% sequential increase.
The sequential increase was due to increased production in Kazakhstan, offset in part by lower production in South Africa as a result of weak domestic market conditions. Average selling prices were $450 per ton compared with $592 per ton in the year-ago quarter.
Mining: Iron ore production decreased 1.2% year over year but increased 5.1% sequentially to 16.4 million tons in the reported quarter. The sequential increase was due to seasonally higher production in Canada. Coal production declined 16.7% year over year and 3% sequentially to 1.5 million tons. Revenues decreased 30.3% year over year but rose 27.2% sequentially to $964 million.
Balance Sheet
Cash and cash equivalents (including restricted cash) amounted to $4.7 billion as of Jun 30, 2015, compared with around $4.4 billion as of Jun 30, 2014. The company’s long-term debt stood at about $18 billion as of Jun 30, 2015, compared with $18.1 billion as of Jun 30, 2014.
New Developments
On Jul 13, 2015, ArcelorMittal, carbon recycling company LanzaTech and leading technology and service provider Primetals Technologies signed a letter of intent to build Europe’s first-ever commercial scale production facility.
The facility will create bioethanol from waste gases produced during the steelmaking process, which can reduce greenhouse gas emissions by over 80% compared with conventional fossil fuels. The €87 million worth project will be located at ArcelorMittal’s steel plant in Ghent, Belgium. The construction is expected to begin in late 2015, with bioethanol production expected to start by mid-2017.
On Jul 7, 2015, ArcelorMittal announced that it will restart preparations for the relining of blast furnace No. 5 in Krakow, Poland, which will reach the end of its lifecycle in mid-2016. Investments in the primary operations will total PLN 200 million (over €40 million), including modernization of the basic oxygen furnace No. 3.
On May 22, 2015, ArcelorMittal and the Steel Authority of India Limited (SAIL), India`s leading steel company, signed a Memorandum of Understanding (MoU) to set up an automotive steel manufacturing facility under a joint venture arrangement in India.
Guidance
ArcelorMittal reiterated its guidance for earnings before interest, taxes, depreciation and amortization (EBITDA) to be in the range of $6 billion to $7 billion for 2015.
The company expects global apparent steel consumption (ASC) to be stable in 2015 as compared with 2014. Pick-up in European manufacturing activity will support ASC growth of 1.5% to 2.5% this year. Steel shipments are expected to grow in the range of 3% to 5% in 2015.
The company expects net interest expense of about $1.4 billion for 2015 and its capital expenditure outlook stands at $3 billion.
ArcelorMittal continues to expect positive free cash flow in 2015 and to attain progress toward the medium term net debt target of $15 billion.
ArcelorMittal currently has a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials sector include Schnitzer Steel Industries, Inc. SCHN, Nippon Steel & Sumitomo Metal Corporation NSSMY, and Akzo Nobel N.V. AKZOY. All of them hold a Zacks Rank #2 (Buy).
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