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ArcelorMittal’s European Operations Deliver Strong Earnings

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ArcelorMittal’s European operations

As we discussed previously in this series, Europe accounts for more than half of ArcelorMittal’s revenues. This means ArcelorMittal (MT) is exposed to the slowdown in the Eurozone. Please note that Europe has been struggling under the sovereign debt crisis, which has affected all major economies in the region. The Vanguard FTSE Europe ETF (VGK) gives you exposure to European equity markets.

Let’s see how ArcelorMittal’s European operations performed in 4Q.

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Profits rise

The chart above shows the financial performance of ArcelorMittal’s European operations. As you can see, 4Q revenue dropped by ~10% year-over-year. Steel shipments increased by ~1.5% over this period. Average steel prices have dropped by ~10% year-over-year.

However, the company’s earnings before interest, taxes, depreciation, and amortization (or EBITDA) has increased by more than 35% over this period. The increase in profits is driven by cost optimization in ArcelorMittal’s European operations. ArcelorMittal’s European earnings were better than analysts expected in 3Q 2013 as well. Sustained improvement in European operations should be a key driver for ArcelorMittal.

ArcelorMittal forecasts that demand will pick up in 2015 in its European operations. Steel demand from the automotive industry has been strong. However, the company expects steel imports from China and Russia to affect its European earnings this year.

U.S. Steel (X) also has operations in Europe. Nucor (NUE) and Steel Dynamics (STLD), on the other hand, get most of their revenue from US markets.

North America

Although the performance of ArcelorMittal’s European operations has been better than expected, its North American operations have disappointed. We’ll discuss this difference in detail in our next part.

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