ArcelorMittal’s Q2 2017 Earnings Review: Favorable Pricing Environment Drives Earnings Improvement

July 31st, 2017 by Trefis Team
-1.14%
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24.83
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ArcelorMittal

ArcelorMittal, the world’s largest steel producer, reported a strong second quarter earnings result amid improved business conditions for steel in the U.S. and Europe. Since ArcelorMittal’s earnings included certain one-time items in Q2 2016, we have presented a comparison of the company’s EBIT margins below to illustrate the year-over-year improvement in operational performance.

ArcelorMittal benefited from strong growth in realized prices for its Europe and NAFTA business divisions, which account for around three-fourths of the company’s revenue. Steel prices in both Europe and the U.S. have been boosted as a result of regulatory intervention against unfairly traded steel imports. The proliferation of cheap steel imports had negatively impacted steel prices in ArcelorMittal’s  major markets till last year. However, the imposition of antidumping duties by trade authorities against these unfairly traded imports over the course of 2016 weakened the demand for imported steels, translating into an increase in steel prices.

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From a strategic point of view, the company continues to take steps under its ‘Action 2020’ initiative, geared towards increasing the company’s profitability. Under this initiative, the company is changing its product mix to include a larger share of value-added products such as automotive steels. In addition, a number of technology-driven measures are being undertaken in order to improve operational efficiency. Besides a focus on improving profitability, the company is deploying surplus cash flow towards debt reduction in order to recover its investment grade credit rating. [1] With operating cash flows rising amid favorable business conditions, the company can accelerate debt reduction in the coming quarters. Thus, prospects look quite healthy for ArcelorMittal going forward, a stark contrast to the situation twelve months ago.

Have more questions about ArcelorMittal? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for ArcelorMittal

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Notes:
  1. Q2 2017 Earnings Presentation, ArcelorMittal Website [↩]