ArcelorMittal's (MT) Earnings Drop, Revenues Rise Y/Y In Q3

ArcelorMittal’s (NYSE:MT) profits declined in third-quarter 2018. The company recorded net income of $899 million or 88 cents per share, down from $1.2 billion or $1.18 in the year-ago quarter. The company recorded impairment charges of $509 million in the reported quarter, mainly associated with remedy asset sales for the Ilva acquisition.

Revenues went up roughly 5% year over year to $18,522 million in the reported quarter on the back of higher average steel selling prices. This was offset by lower steel shipments, seaborne iron ore reference prices and market-priced iron ore shipments.

Total steel shipments fell to 20.5 million metric tons from 21.7 million metric tons a year ago, owing to lower steel shipments across NAFTA, Europe and ACIS, partly offset by an improvement in Brazil.

Segment Review

NAFTA: Crude steel production fell around 3.1% year over year to 5.7 million metric tons. Steel shipments declined 2.5% year over year to 5.5 million metric tons. Sales increased roughly 15.8% year over year to roughly $5.4 billion. Average steel selling price rose 20.9% year over year to $896 per ton.

Brazil: Crude steel production rose roughly 12.9% year over year to 3.2 million metric tons. Shipments went up roughly 5.3% year over year to roughly 3.1 million metric tons. Sales increased 2.1% year over year to $2.1 billion. Average steel selling price rose roughly 9.7% year over year to $714 per ton.

Europe: Crude steel production fell 3.6% year over year to 10.8 million metric tons in the reported quarter. Shipments fell 4% year over year to 9.7 million metric tons. Sales increased about 3.9% year over year to $9.6 billion, while average steel selling price rose 7.3% year over year to $776 per ton.

Asia Africa and CIS (ACIS): Sales rose around 2.5% year over year to $2 billion. Crude steel production totaled 3.6 million metric tons, down around 3% year over year. Shipments fell around 11.2% year over year to 3 million metric tons. Average selling prices increased roughly 15.9% year over year to $597 per ton.

Mining: Iron ore production totaled 14.5 million metric tons, up from 14.2 million metric tons in the year-ago quarter. Coal production totaled 1.5 million metric tons, flat year over year. Revenues were down 2% year over year to $1.01 billion.

Financials

As of Sep 30, 2018, ArcelorMittal had cash and cash equivalents of roughly $2.5 billion, down from $3 billion a year ago. The company’s long-term debt was around $8.3 billion, down roughly 9.9% year over year.

Net cash provided by operating activities was $634 million in the reported quarter compared with $763 million a year ago.

Outlook

Per ArcelorMittal, market conditions continue to remain favorable and demand environment is positive along with healthy steel spreads. The company anticipates global apparent steel consumption (“ASC”) growth in the range of 2-3% in 2018, which remain unchanged from the previous growth expectation.

In the United States, the company projects ASC growth of 2-3% in 2018, also unchanged from prior projections. Demand in construction and machinery is likely to drive growth in ASC. The company continues to anticipate ASC growth in Europe to be in the range of 2-3%, supported by strength across construction and machinery end-use markets.

ASC is expected to rise 5.5-6.5% in Brazil, unchanged from prior expectation. ASC growth in China is expected to be 1-2% (unchanged from prior forecast), driven by consistent improvement in real estate demand, ongoing strong machinery and automotive demand, partly offset by slowdown in infrastructure.

The company expects to make a working capital investment of roughly $3-$3.5 billion for 2018, with significant release in the fourth quarter. Expected cash needs of the business are likely to be around $5.8 billion in 2018, unchanged from previous forecast.

Price Performance

ArcelorMittal’s shares lost 21.3% in the past three months compared with 15.3% decline of the industry.

Zacks Rank & Stocks to Consider

ArcelorMittal currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space are Methanex Corporation (NASDAQ:MEOH) , KMG Chemicals, Inc. (NYSE:KMG) and CF Industries Holdings, Inc. (NYSE:CF) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Methanex has expected long-term earnings growth rate of 15%. Its shares have rallied 32.4% in the past year.

KMG Chemicals has expected long-term earnings growth rate of 28.5%. Its shares have rallied 35.8% in the past year.

CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 21.8% in a year.

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