Business and Capital Market Analysis !!!

By Mayur Pahilajani - iStockAnalyst Writer
Wednesday, November 05, 2008 8:52 AM


New York, NY - Barack Obama's historic victory may have better impact on the U.S. economy in the long run, but some of the sectors including steel may still struggle to claw their way out of the recession as raw material demand dampens.

The shares of the world's largest steelmaker by volume, ArcelorMittal SA, declined early Wednesday after the company posted smaller-than-anticipated profit increase in the third quarter and reported large output cuts amid gloomy outlook on the industry's weakening demand from automobile, construction and appliance sectors.

In its third quarter report, the company said it plans to slash more than 30 percent of steel output across the world, up from its previous decision to cut production by 15 percent. The company has acknowledged that things have "worsened" over the last three weeks, forcing the firm to accelerate production cuts.

"The current period of de-stocking requires that we make appropriate production cuts to seek to rebalance supply and demand, and we are also accelerating efforts to pay down debt," Lakshmi N. Mittal, Chairman and CEO, ArcelorMittal, said in a statement on Wednesday.

Net income for the three months ended September 30, 2008 was up by 29 percent to $3.82 billion, or $2.79 per share, compared with net income of $2.96 billion or $2.10 per share, for the same period a year earlier. The company had posted net income of $5.8 billion, or $4.20 per share, for the three months ended June 30, 2008.

Earnings before interest, tax, depreciation and amortization (EBITDA) increased by 76 percent in the third quarter to $8.58 billion, compared to $4.88 billion reported a year earlier in the same period. The market analysts had expected EBITDA to be at $8.7 billion.

Revenue of the company on sales increased by 38 percent to $35.2 billion in the quarter; while total shipments declined to 25.6 metric tons from 26 metric tons in the third quarter a year earlier.

For the fourth quarter outlook, the Luxembourg-based company said it expects to post earnings drop by as much as 48 percent to $2.5 billion due to increased production cuts following weaker demand across all segments led by the on-going credit and economic environment.

The firm is expected to report capital expenditures the three months ended December 31, 2008, to be around $1.5 billion, while EBITDA will be between $2.5 billion to $3 billion in the same quarter. ArcelorMittal will maintain its dividend at $1.50 a share in 2009 and reduce total debt by $10 billion by the end of next year.

"We remain optimistic about the industry's medium-term growth prospects, but it is appropriate to pause our growth strategy until we have a more settled economic outlook," Mittal said in the statement.

Shares of the company were dropping by $5.45 or 17.19 percent to $26.25 at 8:33 am Easter Time in pre-market trading. On Tuesday, ArcelorMittal had closed higher by $4.41 or 16.16 percent to $31.70 on the New York Stock Exchange.

Sources:

1. ArcelorMittal SA To Cut 30% Output On Waning Steel Demand, Posts Lower 3Q Profit
2. ArcelorMittal Reports Third Quarter 2008 Results