Charges Hit ArcelorMittal in 4Q - Analyst Blog

Steel bellwether ArcelorMittal (MT) posted a net loss of $4 billion or $2.58 per share in the fourth quarter of 2012 compared with a net loss of $1 billion or 65 cents per share a year ago. The bottom line was hurt by hefty charges and challenging economic conditions in Europe where the demand for steel dropped 8.8% last year.

Adjusted loss of $1.47 cents a share for the quarter exceeded the Zacks Consensus Estimate of a loss of 15 cents per share. The adjusted loss excludes $4.8 billion of goodwill impairment charges associated with the company’s European businesses and $192 million of restructuring charges.

For full-year 2012, the company posted a net loss of $2.41 per share compared with an income of $1.46 in 2011. Adjusted loss was $1.05 per share, missing the Zacks Consensus Estimate of a loss of 4 cents per share.

Revenues declined 14% year over year to $19,309 million in the reported quarter, trailing the Zacks Consensus Estimate of $20,168 million. Sales also declined 2.1% on a sequential basis due to lower average steel selling prices. Shipments declined 2.9% to 20 million metric tons in the quarter.

For the full year, sales were $84,213 million, up 10.4% year over year, but missed the Zacks Consensus Estimate of $84,902 million.

Segment Review

Flat Carbon Americas: Higher production in South America, after the reline of a blast furnace in Tubarao, Brazil, led to a 3.6% sequential increase in steel production to 5.9 million tons in the fourth quarter. However, production declined 1.3% on a year-over-year basis. Average selling prices went down 8.2% year over year to $797 per ton.

Sales went down 6.9% annually and 3.2% sequentially to $4,683 million due to lower steel selling prices in North America and weakening slab pricing in Brazil and Mexico.

Flat Carbon Europe: Revenues slid 12.3% year over year and were almost flat sequentially at $6,142 million in the quarter as lower average steel selling prices offset the increase in shipment volumes. Steel production fell 3.7% from last year and 5.1% sequentially due to reduced inventory levels and output was aligned with local market levels. Average selling prices went down 11.2% from last year to $847 per ton.

Long Carbon Americas and Europe: Revenues from the segment dropped 11.9% year over year and were almost flat sequentially at $5,232 million. Sales were affected by a decrease in average steel selling prices. Average selling prices fell around 5.4% year over year to $857 per ton. Production declined 4.3% on a year over year basis and 8.3% sequentially, due to lower market demand as well as operational issues.

Asia Africa and CIS (AACIS): Sales slipped 22.1% from the year-ago quarter and 13.3% from the previous quarter to $2,130 million due to lower steel shipments and average steel selling prices. Average selling price was $611 per ton compared with $713 per ton in the year-ago quarter.

Distribution Solutions: Revenues declined almost 20.9% year over year but were up 3.7% on a sequential basis to $3,855 million. The sequential improvement reflected higher steel shipment volumes. Average steel selling prices declined 12% year over year to $834 per ton.

Mining: Iron ore production plunged 7.3% year over year and 2.1% from the previous quarter to 14 million tons in the reported quarter. Coal production declined 9.1% year over year and was flat sequentially at 2 million tons.

Balance Sheet

Cash and cash equivalents (including restricted cash) amounted to $4.5 billion as of Dec 31, 2012, compared with $3.9 billion as of Dec 31, 2011. The company’s net debt decreased by $1.4 billion to $21.8 billion as of Dec 31, 2012, as compared with $23.2 billion as of Sept 30, 2012, driven by positive operating cash flow and recovery of subsidiary financing.

Dividend

The company announced during third-quarter 2012 that it will reduce the annual dividend payment to 20 cents per share in 2013 from 75 cents per share in 2012. The reduced dividend will be paid in Jul 2013 once approved by the shareholders at the next annual general meeting in May 2013.

Outlook

The company anticipates steel shipments to increase by approximately 2%-3% from last year in 2013. Capital expenditure has been projected to be approximately $3.5 billion for the year. Also, the company expects EBITDA to be higher in 2013 than 2012.

About $5 billion of cash receipts is expected from the capital raised in Jan 2013 and the announced sale of a 15% stake in ArcelorMittal Mines Canada expansion is expected to reduce net debt to approximately $17 billion by Jun 30, 2013.

ArcelorMittal remains affected by the challenging economic conditions in Europe. It is also exposed to volatility in steel pricing and tough competition and has significant debt. The company is highly focused on reducing debt, lowering costs and improving efficiency.

ArcelorMittalcurrently maintains a Zacks Rank #3 (Hold).

Other companies in the steel industry with favorable Zacks Ranks are Gibraltar Industries Inc. (ROCK), POSCO (PKX) and ArcelorMittal South Africa (AMSIY). All of them hold a Zacks Rank #2 (Buy).

 (AMSIY): ETF Research Reports

ARCELOR MITTAL (MT): Free Stock Analysis Report

POSCO-ADR (PKX): Free Stock Analysis Report

GIBRALTAR INDUS (ROCK): Free Stock Analysis Report

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