Steel giant ArcelorMittal (MT) reported diluted net loss of 51 cents per share in the fourth quarter of 2010, much below the Zacks Consensus Estimate of 19 cents as well as last year’s 89 cents. The reported loss was attributable to impairments and some were also related to Aperam. However, in fiscal 2010, ArcelorMittal earned $1.72 per diluted share versus 11 cents in the prior year.
Total steel shipments in the fourth quarter of 2010 were 21.1 million metric tons compared with 19.5 million metric tons in the year-ago quarter. In fiscal 2010, total steel shipments increased 22% year over year to 85.0 million metric tons from 69.6 million metric tonnes in the prior year.
Revenue
Quarterly revenues increased 4.8% year over year to $20.7 billion from 17.4 billion in the year-ago quarter. Sales were higher primarily due to higher shipment volumes (+3%). However, the results were slightly below the Zacks Consensus Estimate of $20.9 billion.
In fiscal 2010, total revenue was $78.0 billion compared with $61.0 billion in the prior year. The increase was attributable to the improvement in global steel markets in the wake of the global economic crisis, leading to margin recovery and higher steel shipments.
Costs
Depreciation expense of $1.1 billion in the fourth-quarter 2010 was slightly down from $1.2 billion in the prior-year quarter.
Impairment losses were $381 million, and included $186 million relating to the company’s coal mines in Russia, $113 million relating to certain subsidiaries in the Distribution Solutions segment (primarily reflecting continued construction market weakness) and $82 million primarily relating to idle downstream assets in the European business, compared with impairment losses of $26 million in the year-ago quarter.
In fiscal 2010, depreciation costs were $4.4 billion versus $4.6 billion in the prior year. Impairment losses amounted to $525 million versus impairment losses of $552 million in fiscal 2009.
Operating income in fourth-quarter 2010 was $0.4 billion compared with an operating income of $0.7 billion in the year-ago quarter. The drop in operating income resulted from higher operating costs, primarily due to a rise in raw materials cost, while steel selling prices were generally lower for the quarter. Operating income in fiscal 2010 was $3.6 billion compared with an operating loss of $1.5 billion in the prior year.
Foreign exchange and other net financing costs were $494 million in the fourth quarter of 2010 compared with $70 million in the prior-year quarter. Foreign exchange and other net financing costs were $1.2 billion in fiscal 2010 compared with $0.5 billion in the prior year.
Segment Review
Flat Carbon Americas: Sales in the segment were $5.0 billion in the fourth quarter of 2010, up 4.9% sequentially, primarily due to higher steel shipments (+9.1%), partly offset by lower average steel selling prices (-6.9%).
Flat Carbon Americas crude steel production amounted to 5.6 million tons in the quarter, down 5.0% sequentially as it was negatively impacted by disruption in the coal handling port used by South American operations.
Shipments were 5.4 million tons, up 9.1% sequentially, primarily due to increased slab deliveries from South American and Mexican operations. Brazilian domestic shipments were lower as local producers were impacted by continued de-stocking by distributors and lower priced imports.
EBITDA in the fourth quarter declined 29.8% to $541 million, primarily due to lower steel selling prices.
Flat Carbon Europe: Sales in the segment were $6.8 billion in the quarter, up 8.8% sequentially primarily due to the appreciation of the euro against the US dollar, which contributed to higher average selling prices in the US dollar terms, as well as marginally higher steel shipments.
Flat Carbon Europe crude steel production amounted to 7.0 million tons in the quarter, down 1.4% sequentially. Shipments were 6.6 million tons, up 1.1% sequentially.
EBITDA in the quarter was $563 million, up 18.3% sequentially as it was positively impacted by a $140 million gain on sale of carbon dioxide credits that ArcelorMittal will fully re-invest in energy savings project within the Flat Carbon Europe perimeter. Excluding this gain, EBITDA in the fourth quarter of 2010 was down 11.1% to $423 million due to higher costs.
Long Carbon Americas and Europe: Sales in the segment were $5.6 billion in the quarter, flat sequentially. Overall average steel selling prices remained stable in US dollar terms quarter on quarter, but declined in local currency.
Long Carbon Americas and Europe crude steel production reached 5.3 million tons during fourth-quarter 2010, down 2.7% sequentially, mainly due to a seasonal slowdown in Brazil.
Shipments were 5.7 million tons, down 1.3% sequentially, primarily due to the seasonal slowdown in the South American operations.
EBITDA was $343 million, down 45.8% sequentially primarily due to Long Carbon Americas, which had a seasonal reduction in volumes, reduced production resulting in higher fixed costs as well as an overall reduction in prices in local currency.
Asia Africa and CIS (AACIS): Sales in this segment remained flat sequentially at $2.6 billion during the quarter. Average steel selling prices in the fourth quarter were slightly lower in US dollar terms, which were offset by slightly higher shipments.
AACIS segment’s crude steel production was 3.6 million tons, down 3.1% sequentially, primarily due to lower production in the South African operations.
Shipments were 3.4 million tons, up 4% sequentially, primarily due to higher exports from both the CIS and South African operations.
EBITDA during the quarter was $281 million, down 21.9% sequentially, primarily due to production disruptions and weakness in the domestic market. However, EBITDA in the CIS operations improved during the quarter due to higher shipments and selling prices.
Distribution Solutions: Sales in the segment were $4.3 billion, up 7.5% sequentially, primarily due to higher steel shipments (+6.4%) and marginally higher average steel selling prices in US dollar terms (+1.1%).
Shipments in the segment were 4.8 million tons, an increase of 6.4% compared with 4.5 million tons in the last quarter.
EBITDA was $87 million, down 31% sequentially, due to lower selling prices in local currency and higher costs.
Balance Sheet
At the end of December 31, 2010, cash and cash equivalents including restricted cash was $6.3 billion versus $6.0 billion at the end of December 31, 2009. Long-term debt was $19.3 billion versus $20.7 at the end of December 31, 2009.
Operating cash flow in the fourth quarter of 2010 was $3.6 billion versus operating cash flow of $2.8 billion in the year-ago quarter. Capital expenditure was $1.4 billion versus $0.8 billion in the year-ago quarter.
ArcelorMittal and Nunavut Iron
On January 14, 2011, ArcelorMittal and Nunavut Iron announced a joint offer for Baffinland (70% ArcelorMittal and 30% Nunavut). On February 7, 2011 ArcelorMittal and Nunavut Iron declared that they have taken-up over 90% of the outstanding Common Shares of Baffinland on a non-diluted basis (or approximately 89% of the outstanding Common Shares on an in-the-money, fully diluted basis) under this offer.
ArcelorMittal has now acquired a sufficient number of common shares of Baffinland to permit it to effect one or more subsequent acquisition transactions to mandatorily acquire any remaining outstanding securities of Baffinland. Any such transaction is expected to be completed by the end of the first quarter.
However, in the meantime the deadline of the offer has been extended until February 17, 2011. In addition on January 27, 2011, ArcelorMittal, Nunavut Iron Ore Acquisition Inc. and Baffinland Iron Mines Corporation (“Baffinland”) announced changes to the board of directors of Baffinland.
Spin-off of Stainless Steel Business
On January 25, 2011, an extraordinary general meeting of shareholders of ArcelorMittal approved all resolutions on the agenda including the primary one, the spin-off of ArcelorMittal’s stainless and specialty steels business into Aperam, a newly created company.
In total, 963,117,270 shares or 61.7% of the company’s share capital, were presented or represented at the meeting. The primary resolution on the meeting’s agenda was adopted by the shareholders by an overwhelming majority
Outlook
For the first quarter of 2011, management expects EBITDA to be approximately $2.0 – $2.5 billion. Shipment volumes, average steel selling prices and EBITDA/ton are expected to increase sequentially, while capacity utilization levels are expected to improve to approximately 76%. Additionally, operating costs are expected to increase sequentially due to higher raw material prices.
The company expects working capital requirements and net debt to increase in the first quarter of 2011, in line with the increased activity levels, higher raw material costs and increased investment activity (including M&A). The company expects its full-year 2011 capital expenditure to reach $5 billion, of which $1.4 billion is estimated to be spent on mining.
Currently, ArcelorMittal has a short-term (1 to 3 months) Zacks #3 Rank (Hold).
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