Shares of steel giant ArcelorMittal (MT 7.41 -0.36) sold off early this
morning following quarterly results, despite reporting $1 billion in profit.
The company reported first quarter earnings of $0.33 per share, which came in better than expected. Net income was $1.0 billion, well above the loss of ($416) million reported in the same quarter last year
On the top line, revenues rose 20.1% year/year to $16.09 billion, which fell a bit short of expectations.
One thing investors may not have liked to see was the increase in debt. Due to seasonal working capital investment ($2.2 billion), net debt increased to $12.1 billion as of March 31, 2017, as compared to $11.1 billion as of December 31, 201. Separately, volatility in the commodities markets and steel industry may have investors acting shaky.
Total steel shipments in 1Q 2017 were 5.1% higher at 21.1 million metric tonnes as compared with 20.0 million metric tonnes for 4Q 2016 primarily due to improved shipments in NAFTA (+12.0%), Europe (+7.1%) and ACIS (+4.1%) offset in part by lower shipments in Brazil (-21.7%). Total steel shipments for 1Q 2017 were 1.9% lower as compared to 1Q 2016 primarily due to lower shipment volumes in Brazil (-9.9%), Europe (-2.3%) and ACIS (-2.8%) offset in part by improved shipments in NAFTA (+2.7%).
On a comparable basis (considering the sale of long steel producing subsidiaries in the US (LaPlace and Vinton) in 2Q 2016 and Zaragoza in Spain during 3Q 2016), total steel shipments for 1Q 2017 were 0.9% lower as compared with 21.2 million metric tonnes for 1Q 2016.
Operating income for 1Q 2017 was $1.6 billion as compared to $0.8 billion in 4Q 2016 and $275 million in 1Q 2016. Operating income for 4Q 2016 was impacted by impairments as discussed above. Operating income for 1Q 2017 was higher as compared to 4Q 2016 primarily due to higher operating results in steel business as well as improved results in the Mining segment driven primarily by higher seaborne iron ore prices. Looking ahead, the following global apparent steel consumption ("ASC") figures have been updated to reflect the Company's final 2016 estimates.
The outlook for 2017 remains unchanged from those presented in connection with the full year 2016 results announcement. Global ASC is estimated to have expanded by +1% in 2016. Based on the current economic outlook, ArcelorMittal expects global ASC to grow further in 2017 by between ~ +0.5% to +1.5%. By region: ASC in the US (excluding Pipe & tube) declined in 2016 by approximately - 2.0%, driven in large part by a significant destock in the 2H 2016.
However, underlying demand continues to expand, and the expected absence of a further destock in 2017 should support ASC growth in the US of approximately +3.0% to 4.0% in 2017.
In Europe, ArcelorMittal expects the pick-up in underlying demand to continue, supported by the strength of the automotive end market, but apparent demand is expected to be modest at +0.5% to +1.5% in 2017 (versus growth of +3.0% in 2016). In Brazil, following the significant decline in ASC in 2016 (-13.8%) ASC is expected to grow by +3.0% to +4.0% in 2017 as the economy mildly recovers as consumer confidence returns.
In the CIS, following an ASC decline of -3.8% in 2016, the region should stabilize in 2017 with ASC similar to 2016 levels (-0.5% to +0.5%). In China, following ASC growth of +1.3% in 2016, demand is expected to stabilize in 2017 (decline of around 0% to -1.0%). Capex spend in 2017 is expected to increase to $2.9 billion (from $2.4 billion in 2016) as the Group seeks to capitalize on opportunities to grow value and returns.
Commenting, Mr. Lakshmi N. Mittal, ArcelorMittal Chairman and CEO, said: "I am satisfied with the first quarter results, which reflect the anticipated positive momentum in the market and the progress we are making internally to make the business stronger. All parts of the business reported improved EBITDA as steel prices responded to higher raw material costs and strong volume growth saw steel shipments increase by 5.1% compared with the fourth quarter. Our mining segment benefitted from an increase in iron-ore shipped at market prices as well as the higher raw material price environment. Looking ahead, we expect market conditions to be broadly stable in the second quarter. While this is encouraging, the steel industry is still impacted by unfair imports in many of our key markets and we hope to see further progress in ensuring the necessary trade solutions"