ArcelorMittal Eyes Swing to Net Profit Despite Iron Ore Price Slump -- Earnings Preview

By Alex MacDonald

LONDON--ArcelorMittal (MT) is forecast to report its third consecutive quarterly net profit on Friday, as a broadly stronger performance in its steel business more than offset the negative impact of a falling iron ore price in its mining operations during the fourth quarter.

Here's what you need to know:

EARNINGS FORECAST: ArcelorMittal is forecast to report a net profit of $442 million for the fourth quarter, compared with an impairment-weighted $1.23 billion net loss in the same period a year earlier, according to a Factset poll of analysts' expectations. The world's largest steelmaker should benefit from the receipt of nearly $400 million in proceeds from the sale of its 50% stake in the Gallatin joint venture and the absence of hefty impairment charges.

EBITDA FORECAST: Earnings before interest, taxes, depreciation and amortization is forecast to fall 6.3% to $1.79 billion in the fourth quarter, compared with the same period a year before. However, Ebitda should still rise 5.4% rise to $7.28 billion for the full-year, in line with the company's previous guidance for Ebitda of more than $7 billion in 2014.

REVENUE FORECAST: Revenue is forecast to fall 3% to $19.3 billion in the fourth quarter compared with the same period a year earlier, largely due to a slump in the iron ore price, which will more than offset an increase in iron ore output during the period. Revenue, will however rise 1.3% to $80.42 billion over the full-year, buoyed by higher steel output.

WHAT TO WATCH:

OUTLOOK: Analysts will seek an update about the steelmaker's global steel demand outlook for this year and for views on how currency devaluation in Brazil, Europe, and the Commonwealth of Independent states will affect its business. Analysts are forecasting the company will give guidance of Ebitda toward $7.49 billion in 2015, according to a Factset poll. Anglo American, one of the world's largest iron ore producers, forecasts global crude steel production to grow by approximately 2% in 2015, with slower growth of 1% to 2% in China and slightly stronger growth in the rest of the world.

MORE IRON ORE WOES: Analysts are calling into question whether the steelmaker will be able to ramp up its production capacity to a targeted 84 million tons by the end of 2015, after an the Ebola crisis in Liberia prompted many of the company's contract workers there to declare force majeure on the its Liberian mine expansion plan. The mine is Ebola free and still running normally, but the delay may mean that the steelmaker will struggle to meet its expansion target.

DEBT CONCERNS: ArcelorMittal dropped deeper into junk territory when credit ratings agency Standard & Poor's downgraded the company's debt due to weaker iron ore prices earlier this month. The rating agency said it lowered its long-term credit rating on ArcelorMittal to BB from BB+, but maintained a stable outlook on the company's credit ratings. "We believe that ArcelorMittal has some flexibility and capacity to support the current rating," it noted. ArcelorMittal wants to reduce its net debt to $15 billion over the medium term, but analysts aren't sure whether it's still feasible to expect such a feat over the next year or two.

Write to Alex MacDonald at [e-mail]

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