When the world’s largest steel company, ArcelorMittal (MT, Financial), announced upbeat earnings that were better than analysts’ expectations in the presence of global macroeconomic headwinds, many were surprised and confused by how the company was able to churn out good numbers when the entire industry is in a vacuum. In fact, ArcelorMittal did show some concern regarding a dim future ahead, though it achieved what it required to in the final quarter of the fiscal year 2014 that was declared on February 13 from the company headquarters. Let’s dig deeper to find out the major financials shared in the earnings call, and what outlook has been provided by the company management on its upcoming future.
The quarter numbers were an interesting lot
The company that makes 6% of the world’s total steel production narrowed its loss which came in at $955 million, from $1.23 billion loss reported in the final quarter of the past fiscal year. In fact, the company blamed low iron-ore prices and the flush of exports from Asian countries with special emphasis given to China, as the major factors responsible for the reported loss though it was offset by strong demand for steel in the key developed markets.
Moreover, as the Luxembourg-based steel maker had to take a $1 billion charge related to impairment of assets and losses linked to currency exchange, it led to dragging the profits down and still generating losses to be reported by the company. But, yes, the loss was minimal compared on a year-over-year basis.
Since the company is also engaged in mining besides steel production, it digs iron ore in nine countries which is the main ingredient for manufacturing steel. But as the iron ore prices are entering an all-time low, the mining business line has been hurt and has led the operating income of the mining division to swing to a $50 million loss from $324 million of profit reported a year earlier.
The drop in iron ore prices by more than 45% in the quarter, over that noticed a year ago, led the overall revenue to decline 5.7% to $18.72 billion in the fourth quarter. But the earnings was better than expected standing at a loss of $0.53 a share, versus $0.69 loss a share reported last year.
Outlook remains sound, yet cautious
Mr. Lakshmi Mittal stated during the earnings conference, “Operating conditions remain tough [but] we expect steel markets to continue to improve, particularly for high value-added products such as automotive…” And as the fact remains that ArcelorMittal is the leading provider of flat steel to the global auto sector, thus the company foresees a bright future ahead with respect to steel shipments that is predicted to rise at least by 4-5% in volume.
With respect to the mining segment, the management does not expect much of a forward-looking prediction and expect iron ore prices to dip further during the year. And they also suggest that the loss in revenue made in mining in 2015 could be offset by improved cost performance including the benefits made from foreign exchange factor, energy sector and from higher steel shipment volumes.
The company expects modest improvement of steel demand in China and forecasts drop in demand in Brazil and the former Soviet states. But now it estimates that U.S. steel consumption would be higher than 5-6% estimated earlier, to about 8.25-8.75% in the fiscal year 2015.
But unlike most of the analysts who have estimated that the global demand for steel would see a boost in 2015, ArcelorMittal expects the global steel consumption to grow less than last year in the range of 1.5-2%.
Last word
As most of the steel companies are facing their doomsdays after the surge in exports from China and South Korea, ArcelorMittal also expects the storm to remain in the upcoming fiscal year and has strategies in place to keep its top and bottom lines intact even when the price pressure is slowly building up in the steel-making business. Investors seem convinced to remain invested in ArcelorMittal stock which went up 4.7% on the NYSE in recent trading. Let’s stay tuned and find out if the outlook forecast by the company is met in the upcoming fiscal year.
