Investors Punish ArcelorMittal for Vague Report

Steelmaker ArcelorMittal reports a 60% decline in sales for its second quarter, and gives an ambiguous outlook for recovery.
Publish date:



) --


(MT) - Get Report

, the world's biggest steelmaker, made some ambiguous pronouncements regarding a recovery in the global economy -- and thus its business -- in an otherwise dismal second-quarter report issued Wednesday.

In a press-release statement, the company's chairman and CEO, the Anglo-Indian billionaire Lakshmi Mittal, called the first half of 2009, "the most challenging the steel industry has ever experienced."

But he went on to say that "in recent weeks" the company has "started to see some initial signs of recovery." He didn't go into any details other than to say that, based on those signs, ArcelorMittal plans to re-start production at some of its mills.

Mittal's words appeared ameliorative. He said the company expects "gradual improvement" during the second half of the year "with full recovery remaining slow and progressive."

But later, in a conference call to discuss the results with analysts and investors, Mittal seemed a little less optimistic, almost contradicting his statement in the press release.

"We were at a very low level of economic performance ... (so) to reach the pre-crisis level it will not be before 2011," Mittal said during the call, according to Reuters.

On Tuesday,

US Steel made some similar remarks: business stunk in the first half of the year. But a pop in orders for flat-rolled steel, the material used in cars and kitchen appliances, has caused it to increase capacity at some of its mills.

Many industry watchers are wary, though. The recent jump in demand has been seen as a kind of fool's gold, the result of China's massive stimulus package and, perhaps more importantly, a natural reaction to the fact that steel stocks had fallen so low amid the recession -- a process known as destocking.

As for concrete financial guidance, Arcelor was also circumspect. It forecast third-quarter earnings before interest, taxes, depreciation and amortization of $1.4 billion to $1.8 billion, and said it expects to ship slightly more steel in the third quarter compared with the second.

Still, prices will likely remain the same, or even fall a bit, though this could be offset to a degree by declining raw materials costs, the company said.

After all that, investors evidently chose to view the glass as half empty Wednesday. Along with the broader markets, ArcelorMittal's New York-listed American Depositary Receipts sold off sharply, falling $2.61, or 7%, to $33.98, in the first few minutes of the regular session. US Steel shares also fell, giving up more than 4% to $38.59.

For its second quarter, ArcelorMittal posted a big loss (its third straight): $800 million, or 57 cents a share. But those figures included $1.2 billion in inventory write-downs and charges related to laying off workers.

Areclor, based in the tax haven of Luxembourg, didn't break out those items to produce an adjusted figure. Analysts, who normally exclude such charges from their estimates, were forecasting an Arcelor loss of 21 cents a share in the quarter. A year ago, the company earned $5.8 billion, or $4.20 a share.

Sales plunged 60% to $15.2 billion from the $37.8 billion the company recorded a year ago, Arcelor said, though they were flat with the first quarter's top line.

--Reported by Scott Eden in New York.

Copyright 2009 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.