One year ago, Ispat had lost $26 million; but in Q3 2004, the company reversed that loss and racked up GAAP profits of nearly $120 million. Sales increased 68% year-on-year, with 12% of the increase attributable to greater shipments and 50% of the increase coming from Ispat charging higher prices on its goods.
Year-to-date, sales are up 47%, and profits, at $217 million for the first nine months of 2004, have reversed last year's losses for the equivalent period. Cash flows have also prospered, with last year's cash from operations nearly tripling in the first nine months of 2004 and free cash flow coming in strong at nearly $42 million.
As we discussed last month, Ispat's parent company will soon merge with privately held LNM Holdings, renaming the resulting company "Mittal Steel Company," then heading west to buy out America's International Steel Group
The soon-to-be-majority holder of Mittal, a gentleman of the same name, clearly feels that the market for steel is ripe for consolidation and positioned to profit steadily in coming years. Yet in Ispat's earnings report, the company advised that it sees steel demand "softening" and expects earnings next quarter to decline sequentially from Q3's "record level." If you recall, it was just more than seven months ago that fellow steelmaker Schnitzer Steel
Personally, I do believe that the cyclical steel industry is due for a downturn soon, but I'd caution against being, well, cautious in jumping to a conclusion that the downturn is upon us already, based solely on Ispat's warning. Once again, as I've done in the past, I turn to an earnings release from Schnitzer for insight. In its October report, that company mentioned offhand that the coming quarter (its fiscal first quarter, which is Ispat's fiscal fourth) is one of seasonally weak steel demand. It could well be that that seasonal weakness is all that Ispat was referring to, when forecasting its earnings decline over the next three months.
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Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.