Last week, the soon-to-be-largest steelmaker in the world, the Netherlands' Mittal Steel (NYSE:MT), filed its first annual earnings report under its new name. Mittal made four major acquisitions in 2004 and is due to complete another, the buyout of International Steel Group (NYSE:ISG), in the first quarter of 2005. Given all the recent and upcoming activity, Mittal advised investors that comparisons of its 2004 results with previous years' numbers may not be particularly helpful.
Very well. Let's skip the year-to-year comparisons -- which, helpful or not, certainly look impressive and boast several triple-digit percentage increases -- and just set up a baseline against which we can compare future results.
In 2004, Mittal Steel shipped 42.1 million tons of steel, valued at $22.2 billion. On those sales, the company posted operating margins of 27.5% and net margins of 21.2%. Those numbers already compare favorably with those of the company's primary competitors. Here are the numbers, in chart form, showing the relative size and profitability of Mittal versus a few of its publicly traded rivals, as well as the earnings multiples that the market is according each of them.
| Firm | Revenues | Operating Margins | Net Margins | Trailing P/E |
|---|---|---|---|---|
| Mittal Steel | $22.2 billion | 27.5% | 21.2% | 5.2 |
| Posco (NYSE:PKX) | $16.6 billion | 17.4% | 11.3% | 8.1 |
| U.S. Steel (NYSE:X) | $14.1 billion | 11.1% | 7.8% | 6.2 |
| Nucor (NYSE:NUE) | $11.4 billion | 15.2% | 9.9% | 8.1 |
| AK Steel (NYSE:AKS) | $5.2 billion | -1.5% | 4.6% | 7.3 |
It appears that Mittal's boast of being the world's "low-cost producer" of steel carries some weight. It outclasses all of its rivals in this regard, having far stronger margins on both an operating and a net basis -- a function, no doubt, of the company's widespread ownership of steel producers in very low-cost countries such as Kazakhstan and Poland. Still, the company sells for a cheaper P/E than do any of its closest publicly traded competitors.
What's more, Mittal's pricing power and its access to well-heeled U.S. customers is set to grow upon the completion of International Steel Group's integration some time next month. In short, Mittal has the steel winds at its back, and Fools who expect metal prices to remain high for a while should consider Mittal as a cheap way to enter this currently popular sector.
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Fool contributor Rich Smith continues to bullheadedly remain a secular bear on the steel industry, Mittal included. For that reason, he has no position in any company mentioned in this article.
