ArcelorMittal (ADR): What to Expect From Earnings Friday

ArcelorMittal (NYSE: MT  ) will release its quarterly report on Friday, and investors have high hopes that the steelmaker will finally end a long string of losses and get back to profitability this year. Yet even though the stock joined U.S. Steel (NYSE: X  ) and Nucor (NYSE: NUE  ) in rallying during the last half of 2013, ArcelorMittal investors haven't been as certain about the prospects for the steel industry in light of recent news of economic sluggishness around the world.

Like its steelmaking peers, ArcelorMittal has suffered over the past several years, as a rash of construction and infrastructure activity that drove steel demand higher gave way to decelerating growth in the global economy and a corresponding drop in steel prices. Yet longtime ArcelorMittal investors have seen the economic cycle run its course before, and buyers eventually will need more steel in order to tackle deferred projects. Will ArcelorMittal fend off U.S. Steel, Nucor, and other competitors to take the lion's share of any growth prospects that arise? Let's take an early look at what's been happening with ArcelorMittal over the past quarter and what we're likely to see in its report.


Image source: Wikimedia Commons, courtesy Borvan53.

Stats on ArcelorMittal

Analyst EPS Estimate

$0.00

Year-Ago EPS

($2.58)

Revenue Estimate

$20.13 billion

Change From Year-Ago Revenue

4.2%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can ArcelorMittal earnings finally go positive this quarter?
In recent months, analysts have pulled back on their optimism about ArcelorMittal earnings. They've entirely eliminated their calls for a modest profit for the fourth quarter and reduced full-year 2014 projections by nearly a quarter per share. Yet the stock has kept climbing, rising 5% since late October.

ArcelorMittal's third-quarter results gave investors a positive look at the rebound that the company has managed recently. Even though it reported a loss for the quarter, adjusted earnings came in well above expectations and grew for the first time in two years. ArcelorMittal pointed to a big jump in iron ore shipments as helping to boost prospects, and it predicted that a rise in steel demand from China could help offset weaker steel consumption in the U.S. and Europe.

One point in ArcelorMittal's favor is that the pricing environment for steel is improving. The company recently announced price hikes in its coil products, while Nucor boosted prices on rebar, and competitors including AK Steel (NYSE: AKS  ) have made price increases on other products. Raw materials costs remain low, and greater efficiency in production could help ArcelorMittal and other industry players boost their profit margin substantially.

Conditions in the U.S. remain challenging for steelmakers, though, and that could hamper the industry. Yet ArcelorMittal's outlook is more favorable than U.S. Steel's and Nucor's, putting the global player in a stronger position to compete against its U.S.-based rivals.

ArcelorMittal is also making smart strategic moves. It entered into a joint venture with Nippon Steel to buy a steel plant from ThyssenKrupp in Alabama, with ArcelorMittal potentially getting fully paid back on its investment within two years. The move takes advantage of ThyssenKrupp's desire to become less of a base-commodity producer and instead focus on more sophisticated finished products, but the plant offers plenty of potential for ArcelorMittal and Nippon to profit.

In the ArcelorMittal earnings report, watch to see if the company can follow U.S. Steel and Nucor in delivering better than expected earnings. If it doesn't, then disappointed investors could well send the stock down, eliminating much of the progress that shares have made in the past nine months.

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