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ArcelorMittal Meets Profit Forecasts, CFO Bullish

Arcelor Mittal's profit came in at the top of analysts’ expectations Wednesday but its shares fell on profit taking, despite bullish comments from Aditya Mittal, president and CFO of the world’s largest steel maker.

Factory, Anshan, China
AP
Factory, Anshan, China

"Fundamentally the industrial economy on a global basis is strong, we see growth in China, India, Russia, Latin America," Mittal told "Power Lunch Europe" on Wednesday, adding that the European market appears to be quite stable, while there is clear weakness in the United States.

Shares of ArcelorMittal, which had risen 24 percent since the middle of January, closed 3.6 percent lower on the Paris CAC-40 due to profit taking, Raphael Del Sarte, co CEO of Global Equities, said.

Sarte acknowledged the run-up in the stock since the merger has been "quite fantastic," but said today's drop is an opportunity for investors to start buying.

"These results are good, but the guidance is good but not exceptional," one Paris-based analyst said.

Earnings before interest, tax, depreciation and amortization (EBITDA) rose by 27 percent to $19.4 billion, compared with an average forecast of $19.35 billion in a Reuters Knowledge poll of 24 analysts. ArcelorMittal's own outlook was for a range of $19.2-$19.4 billion.

The company gave guidance for core profit of $4.7 to $5.0 billion for the first quarter, above the $4.3 billion it posted during the same period last year, showing that steel markets were not yet affected by recession fears in the United States and slowing activity in Europe.

"This reflects the strength of the ArcelorMittal business model, which enables us to benefit from a healthy global demand for steel in both the high-quality developed and fast-growth developing economies," Chief Executive Lakshmi Mittal said in statement.

Analysts believe that a combination of lower Chinese exports and modest inventory levels in Europe and the United States should provide the steel group enough pricing power to cover likely sharp increases in raw materials costs later this year.

The company posted annual sales and net profit of $105.2 billion and $10.4 billion, the latter up 30 percent year-on-year. Analysts had expected figures of $103.5 billion and $10.3 billion respectively.

The group also announced it would return $3.1 billion to shareholders in 2008, of which $2.1 billion will be in cash dividends and $1.0 billion in share buybacks, in line with its policy of giving back 30 percent of net income.

Annual Shipments

In 2007, the company announced plans to increase its annual shipments from 111 million tons in 2006 to 126 million tons in 2012 and said it made 35 acquisitions throughout the world.

It scored a major coup last year when it snatched China Oriental Group, giving it rare foreign control of a Chinese steel mill.

ArcelorMittal is also seeking to raise its own iron ore production to 75 percent of consumption in the coming years, a goal which was announced before BHP Billiton announced its plan to acquire rival Rio Tinto.

That combined group would hold over a quarter of the world market for iron ore, a concentration that would draw competition concerns from the steel industry.

ArcelorMittal's management is also expected to take the opportunity to address criticism over its staff safety policy after a number of accidents in recent years.

An explosion in a Kazakh coal mine owned by the group killed at least 30 workers.

Reporters are also expected to quiz Chief Executive Lakshmi Mittal over French President Nicolas Sarkozy's desire to prevent the closure of one of the group's plants in France.

Mittal, the group's main owner, will replace current Chairman Joseph Kinsch this year, reinforcing his control of the company.

- Reuters contributed to this report.

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