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ArcelorMittal (MT) Q1 Loss Lower than Expected, Sales Miss

Steel giant ArcelorMittal MT posted a net loss of $416 million or 23 cents per share in first-quarter 2016, lower than a net loss of $728 million or 41 cents per share recorded a year ago.

Excluding exceptional and non-cash items, adjusted net loss for the quarter was $176 million compared with adjusted loss of $36 million in the year-ago quarter. Adjusted loss of 10 cents per share for the reported quarter was narrower than the Zacks Consensus Estimate of a loss of 15 cents.

Revenues plunged 21.7% year over year to $13,399 million in the quarter and missed the Zacks Consensus Estimate of $14,189 million. The year-over-year decline resulted from lower average steel selling prices, lower market-priced iron ore shipments and a fall in iron ore reference prices.

ArcelorMittal's shares fell around 0.9% to close at $5.26 last Friday.

Segment Review

NAFTA: Crude steel production dropped 4.5% year over year, but improved 9.9% sequentially to 5.6 million tons. Steel shipments increased 19.2% sequentially and were flat year over year at 5.5 million tons. Sales rose 6.2% sequentially but fell 20% year over year to $3.8 billion. The sequential increase was driven by higher steel shipment volumes. Average steel selling price declined 20.2% year over year to $635 per ton.  

Brazil: Crude steel production went down 7.2% year over year and 6.4% sequentially to 2.7 million tons in the quarter. Shipments fell 14% sequentially to 2.5 million tons, mainly due to a 17.3% decrease in flat steel shipments and a 7% drop in long product shipments due to soft demand.

Sales plunged 40.8% year over year and 40% sequentially to $1.3 billion. The sequential decline was due to lower average steel selling prices and lower steel shipments.

Europe: Crude steel production fell 1.5% year over year but increased 11.8% sequentially to 11.2 million tons. Sales were down 16.8% year over year, but rose 1.1% sequentially to $7.2 billion as a result of higher steel shipments. Average steel selling prices declined 16.3% year over year to $530 per ton.

Asia Africa and CIS (ACIS): Sales tumbled 30.7% year over year and 4.7% sequentially to $1.2 billion owing to lower average steel selling prices. Production came in at 3.7 million tons, rising 1.8% year over year and in line sequentially. Average selling prices were $320 per ton, down 36.9% from $507 per ton a year ago.

Mining: Iron ore production fell 9.6% year over year and 8.9% sequentially to 14.1 million tons. The sequential decrease was due to lower seasonal production in ArcelorMittal Mines Canada.

Coal production declined 12.5% year over year and was on par sequentially at 1.4 million tons. Revenues decreased 20.8% year over year and 20.7% sequentially to $600 million.

Balance Sheet

Cash and cash equivalents (including restricted cash) amounted to $2.9 billion as of Mar 31, 2016, compared with around $2.8 billion as of Mar 31, 2015. The company’s long-term debt was about $16.3 billion as of Mar 31, 2016, compared with roughly $17 billion as of Mar 31, 2015.

Net cash used in operating activities was $690 million in the reported quarter, compared with net cash provided by operating activities of $1,574 million in the sequentially prior quarter.

In Apr 2016, ArcelorMittal said that its subsidiary, ArcelorMittal USA intended to enter into a new, five-year senior secured asset-based revolving credit facility of up to $1 billion, which is expected to close in second-quarter 2016.

Divestment

During the reported quarter, ArcelorMittal agreed to sell its LaPlace and Vinton Long Carbon facilities in the U.S. to an affiliate of Black Diamond Capital Management. ArcelorMittal also entered into a transition services pact with Black Diamond to facilitate a smooth transition period and ensure no business disruption. The transaction is now complete.

Guidance

ArcelorMittal expects global apparent steel consumption to grow modestly in 2016 compared to 2015.

The company expects EBITDA in 2016 to be more than $4.5 billion. The impact of the improving steel spread environment is expected to be fully reflected in its results during the back half of the year.  

The company’s cash requirements are expected to total $4.5 billion for 2016, a more than $1 billion reduction compared with the 2015 level. This includes lower capital expenditure of about $2.4 billion compared to $2.7 billion in 2015, lower interest expenses of roughly $1.1 billion compared to $1.3 billion in 2015, no dividend with respect to the 2015 financial year; and lower cash taxes.

Zacks Rank

ArcelorMittal currently has a Zacks Rank #2 (Buy).

Some other well-ranked companies worth considering in the steel sector include Olympic Steel Inc. ZEUS, POSCO PKX and Steel Dynamics Inc. STLD. All three stocks carry a Zacks Rank #2.

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