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How ArcelorMittal Managed to Post Such Strong 2Q Earnings

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Aug. 2 2016, Updated 9:08 a.m. ET

ArcelorMittal’s 2Q16 earnings beat

Investors can use several metrics to measure a company’s profitability. However, for companies in the commodity space (DBC) (COMT), EBITDA (earnings before interest, tax, depreciation, and amortization) is the most common metric. ArcelorMittal posted EBITDA of $1.8 billion in 2Q16. To put this in context, ArcelorMittal (MT) posted EBITDA of $927 million in 1Q16 and ~$1.4 million in 2Q15. The company’s 2Q16 EBITDA rose on a year-over-year (or YoY) basis as well as on a sequential quarterly basis.

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Key drivers

According to data compiled by Bloomberg, analysts expected ArcelorMittal (MT) to post EBITDA of ~$1.4 billion in 2Q16. In ArcelorMittal’s 2Q16 pre-earnings analysis, we noted that MT’s EBITDA estimates could be a little aggressive. However, the company managed to deliver a significant earnings beat in 2Q16. Let’s see what really drove MT’s 2Q16 earnings.

Action 2020 plan

Sequentially higher steel prices were a key driver of ArcelorMittal’s 2Q16 EBITDA. However, MT’s average steel selling prices have fallen by ~12% per metric ton on a YoY basis. Furthermore, the company’s 2Q16 steel shipments were slightly lower as compared to the corresponding quarter last year. However, ArcelorMittal’s 2Q16 EBITDA rose ~27% YoY despite lower steel selling prices. The company attributed this to its Action 2020 plan. Under the Action 2020 plan, ArcelorMittal is looking to structurally improve its EBITDA.

Note that U.S. Steel (X) is also working on a transformation plan called the “Carnegie Way” to improve its performance. On the other hand, AK Steel (AKS) is moving away from commodity-grade spot steel products to enhance its profit margins.

In the next part of the series, we’ll explore how MT’s different business segments performed in the quarter.

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