ArcelorMittal’s 4Q16 EBITDA
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.
According to data compiled by Thomson Reuters, analysts expect ArcelorMittal (MT) to post adjusted EBITDA of $1.57 billion in 4Q16 and $1.64 billion in 1Q17. In contrast, the company posted adjusted EBITDA of $1.1 billion in 4Q15 and ~$1.9 billion in 3Q16. Analysts expect MT’s 4Q16 EBITDA to rise on a yearly basis. They also expect a sequential fall.
Lakshmi N. Mittal, ArcelorMittal’s (MT) chair and CEO (chief executive officer), said concerning the company’s 4Q16 guidance, “We expect EBITDA to be lower compared with the third quarter due to lower steel prices in the U.S. and the impact of rapidly rising coking coal prices on the steel spreads.”
It’s worth noting that coking coal prices (KOL) rose steeply last year. That rise increased unit production costs for steelmakers producing steel in blast furnaces. Remember, United States Steel (X) produces steel entirely in blast furnaces, while Nucor (NUE) and Steel Dynamics (STLD) produce steel in electric arc furnaces.
Can MT beat estimates?
In our view, ArcelorMittal’s (MT) 4Q16 EBITDA estimates could be somewhat conservative when looking at the uptrend in steel prices in the fourth quarter. Although the full impact of higher spot steel prices in November and December would be reflected in steelmakers’ 1Q17 earnings, it would be safe to assume that some impact could be seen in MT’s 4Q16 EBITDA.
In the next part of this series, we’ll look at some key updates the markets might be looking for in ArcelorMittal’s 4Q16 earnings call.