On Feb 28, Zacks Investment Research downgraded ArcelorMittal MT to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
ArcelorMittal posted loss in the fourth quarter of 2014 because of lower iron-ore pricing that weighed on its mining segment and reduced steel selling prices. Weak demand from China, a key market, continued to hurt iron ore prices in the quarter.
The company reported net loss of $955 million or 53 cents per share in the fourth quarter, which narrowed from a loss of $1.2 billion or 69 cents per share in the year-ago quarter. The company saw lower impairment and depreciation charges in the reported quarter while the year-ago quarter’s results were also dragged down by restructuring charges of $379 million.
Barring one-time items, loss was 43 cents per share for the quarter, higher than the Zacks Consensus Estimate of a loss of 16 cents.
Revenues went down 5.7% year over year to $18.7 billion in the reported quarter, missing the Zacks Consensus Estimate of $19.5 billion. Sales were lower as a decline in average steel selling prices, drop in marketable iron ore shipments and reduced iron ore reference prices more than offset improved steel shipments.
The steel industry is affected by production overcapacity. Demand and pricing for steel remains soft. The world economy is still weak and the challenging conditions persist in Europe and emerging markets. The slowdown in China is also affecting steel demand in the country. Soft construction activity in Europe is another concern. Weakness in key end markets may hinder the company’s earnings power.
ArcelorMittal continues to contend with a difficult economic environment, especially in Europe, in its biggest market, where recovery remains constrained by high unemployment and weak credit growth. Its European business remains under pressure due to lower average steel selling prices. The recovery in the demand environment is expected to be sluggish in the region in the near term.
ArcelorMittal expects earnings before interest, taxes, depreciation and amortization (EBITDA) in be in the range of $6.5 billion to $7 billion for 2015, a decline from $7.2 billion in 2014. Lower iron ore pricing is expected to continue to weigh on its mining business and affect its profits this year.
Other Stocks to Consider
Other companies in the steel industry worth considering include Kobe Steel Ltd. KBSTY, ThyssenKrupp AG TYEKF and LB Foster Co. FSTR. While Kobe Steel and ThyssenKrupp sport a Zacks Rank #1 (Strong Buy), LB Foster carries a Zacks Rank #2 (Buy).
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