Tuesday, May 10, 2011

Arcelor Mittal (NYSE: MT): Q1 Earnings Preview 2011

Arcelor Mittal (NYSE: MT), the world's largest steelmaker, is scheduled to release its first-quarter earnings before the opening bell on Wednesdsay, May 11, 2011. Analysts, on average, expect the company to report earnings of 48 cents a share on revenue of $20.03 billion. In the year ago period, the company reported earnings of 35 cents per share on revenue of $18.10 billion.

Arcelor Mittal produces and markets steel worldwide. It provides a range of finished and semi-finished carbon and stainless steel products. The Company has steel-making operations in 20 countries on four continents, including 65 integrated, mini-mill and integrated mini-mill steel-making facilities.

In the preceding fourth-quarter, the Luxembourg-based company's net loss was $780 million, or 51 cents per share, compared to a net income of $1.11 billion, or 70 cents per share, in the year-ago period. Loss from continuing operations was $233 million, in comparison with a profit of $1.07 billion in the prior year. Loss per share from continued operations was 15 cents compared to earnings of 68 cents last year. Revenue rose 19 percent to $20.70 billion from $17.43 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 18 cents a share on revenue of $20.88 billion.

At its last earnings call in February, the company said that 2011 should be better than 2010, even if the growth of demand is lower. The company also targets 10 percent increase in its own iron ore production in the year 2011. Chief Executive Lakshmi Mittal told a conference call there were signs U.S. construction was turning a corner, although it was too early to say the same in Europe.  The company forecast volume and pricing improvements in the first quarter after a final quarter of 2010 just in profit.

However, the company said that the second quarter should be stronger than the first, when ArcelorMittal's furnaces would run at 76 percent of capacity, compared with 69 percent at the end of 2010. "There is some risk that in the second half of 2011 the strength that we are seeing in the first half will not repeat, but I still expect overall the year to be better," Chief Financial Officer Aditya Mittal said.

The company has targeted cost reduction program to achieve run-rate savings of $5 billion by 2013.

The global steel sector, often seen as a gauge for the broader economy, is benefiting from increasingly confident car firms, although construction, steel's other key market, is still struggling to pull clear of the crisis. In February, Chief Executive Lakshmi Mittal said that there were signs U.S. construction was turning a corner, although it was too early to say the same in Europe. Growth in emerging markets has also helped to increase demand for steel, resulting in record levels of production worldwide.The pricing power and improving economy should help prop up growth for the sector during the coming quarters.

Steel prices climbed by more than 10% in the first quarter of 2011 over the previous quarter. However, Arcelor Mittal will not be able to enjoy the complete benefits of the 10% steel price increase as steel sales for ArcelorMittal are largely linked to long-term contracts, the company . However, it would definitely see an improvement in the overall average realized price from the sale of its products.  ArcelorMittal has the highest leverage to a continued steel recovery and will benefit the most from rising raw material prices.

Among other developments, ArcelorMittal and Cliffs Natural Resources (NYSE:  CLF) finally settled the year-long dispute regarding the pricing of the iron ore pellets supplied by Cliffs to ArcelorMittal for the years 2009 and 2010. ArcelorMittal will end up paying anything between $250 million to $270 million to Cliffs as a part of the settlement. 

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