ArcelorMittal’s 4Q16 earnings beat
There are several metrics you can use to measure a company’s profitability. Net profit is widely used to measure profitability. For companies in the commodities space, EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used.
ArcelorMittal (MT) generated adjusted EBITDA of $1.66 billion in 4Q16 and $6.3 billion in fiscal 2016. In contrast, the company posted adjusted EBITDA of $1.10 billion in 4Q15 and ~$1.9 billion in 3Q16. According to data compiled by Thomson Reuters, analysts expected ArcelorMittal to post adjusted EBITDA of $1.57 billion in 4Q16. ArcelorMittal managed to post better-than-expected EBITDA in 4Q16. In our pre-earnings analysis, we noted that ArcelorMittal’s 4Q16 EBITDA estimates looked somewhat conservative. Now, we’ll discuss the key drivers of ArcelorMittal’s 4Q16 EBITDA.
Segment wise EBITDA
- All of ArcelorMittal’s business segments, with the exception of Mining, reported a sequential decline in 4Q16 EBITDA. We should remember that ArcelorMittal’s Mining segment stands to benefit from higher iron ore prices (CLF).
- NAFTA (North American Free Trade Agreement) was the biggest driver of ArcelorMittal’s lower 4Q16 EBITDA. The segment generated an adjusted EBITDA of $301 million in 4Q16—compared to $566 million in 3Q16.
- Other steel companies with primarily US operations including AK Steel (AKS), Nucor (NUE), and U.S. Steel Corporation (X) also reported a decline in 4Q16 earnings due to lower US steel prices in 4Q16.
- Europe, which is ArcelorMittal’s largest segment in terms of revenue, generated an adjusted EBITDA of $698 million in 4Q16—2.6% lower than its 3Q16 EBITDA.
In the last part of this series, we’ll analyze how analysts changed their ratings for ArcelorMittal after its 4Q16 earnings release.