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ArcelorMittal’s 4Q16 Earnings Beat Wasn’t a Surprise



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.

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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.


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