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ArcelorMittal Beats Estimates, Expects Better Second Quarter

Steelworkers operate machinery during the steel-making process at the ArcelorMittal steel factory in Kryvyi Rih, Ukraine. Photographer: Vincent Mundy/Bloomberg
Steelworkers operate machinery during the steel-making process at the ArcelorMittal steel factory in Kryvyi Rih, Ukraine. Photographer: Vincent Mundy/Bloomberg

May 10 (Bloomberg) -- ArcelorMittal, the world’s biggest steelmaker, posted first-quarter earnings that beat analyst estimates and forecast higher profit in the second three months of the year.

Earnings before interest, taxes, depreciation and amortization fell to $1.57 billion in the first three months of the year from $2.12 billion a year earlier, ArcelorMittal said today in a statement. That beat the $1.32 billion median estimate of 12 analysts surveyed by Bloomberg.

“They’re good numbers -- no one really expected them to be,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “People expected a miss and a full-year downgrade. We didn’t get either. Things are still difficult. Structurally, people are still concerned about the industry.”

Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. European steelmakers are grappling with excess capacity that’s pushed down prices as operating costs climb. The region has capacity to make about 210 million metric tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

ArcelorMittal said today second-quarter Ebitda will exceed the first-quarter result and maintained the full-year forecast that Ebitda will exceed $7.1 billion. In February, it said earnings will recover in 2013 after the company posted the lowest full-year profit since 2009.

Challenging Conditions

“Economic conditions remain challenging, but our performance in the quarter reflects the results of the management action we have taken to confront the effects of the financial crisis,” Lakshmi Mittal, chief executive officer of the Luxembourg-based company, said in the statement.

ArcelorMittal climbed 4.2 percent at 10.095 euros by the close in Amsterdam, the biggest gain since Jan. 2.

The steelmaker said it expects global steel consumption to rise 3 percent this year. The company said in March that consumption would rise 3 percent to 3.5 percent in 2013, while European demand will slide to a low before rebounding next year.

Full-year profitability will be boosted by a 2 percent rise in steel shipments, a 20 percent gain in the volume of iron-ore sold and as the company sees benefits from cost-cutting efforts, the steelmaker said. ArcelorMittal said in March that it plans to cut costs by $3 billion by the end of 2015.

Debt Effort

First-quarter sales slipped 13 percent to $19.75 billion, it said. The company reported a net loss of $345 million compared with a profit of $92 million a year earlier.

ArcelorMittal’s net debt fell by $3.8 billion during the first quarter to $18 billion. The company is seeking to reduce borrowings after its credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

The company has scaled back its dividend and sold assets, including a $1.1 billion stake in its Canadian mining business. It raised about $4 billion in a sale of shares and bonds in a bid to pare debt to $17 billion by the end of June.

ArcelorMittal, which has a medium-term debt target of $15 billion, said it expects to regain its investment grade once it hits that target and the global economy improves.

Investment Grade

“Assuming that there is a macroeconomic improvement, we believe that at that time it would be an appropriate environment to return to an investment grade credit rating,” Aditya Mittal, chief financial officer, said on a conference call with reporters today. When the company gets to $15 billion in debt “we should see an increase in capex as well as dividends.”

ArcelorMittal shipped 20.9 million tons of steel in the the quarter, a 4.7 percent increase from the prior three months. Iron ore production was 13.1 million tons.

The steelmaker’s South African unit today reported a loss of 270 million rand ($30 million) for the first quarter, after a fire that halted the continent’s biggest steel plant. ArcelorMittal South Africa Ltd. said it expects to return to profit in the second quarter.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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