[ferro-alloys.com]ArcelorMittal will release its results for the year 2018 on February 7, 2019 and conduct a conference call with analysts the same day. Market consensus projects the company to post an EPS of $0.94 in the fourth quarter of 2018, higher than $0.89 in Q4 2017. The market expects revenue to grow by 11.0% to $76.3 billion for the year 2018, compared to $68.68 billion in the previous year. Higher EPS is likely as a result of higher realized prices due to restrictive trade practices, lower supply due to curtailment in China for environmental factors, operational efficiency, and lower interest expense owing to early redemption of debt.
We have a price estimate of $35 per share for ArcelorMittal, which is higher than its current market price. Our key expectations for the company’s 2018 results are highlighted in our interactive dashboard – ArcelorMittal 2018 Earnings Preview. You can make changes to our assumptions to arrive at your own estimates for the company’s revenue, EPS, and share price.
Key Factors Affecting ArcelorMittal’s 2018 Results
Rising steel prices: US Tariffs on Chinese imports have led to a rise in steel prices in the US. ArcelorMittal is expected to benefit from higher prices in all its geographical segments. Additionally, the decision of Chinese authorities to enforce curtailments at its local facilities to clean up the environment in China has led to a decline in supply and thus pushed prices upwards during 2018.
Rising shipments: Total volume is expected to see an annual increase of about 2.0% in NAFTA and Brazil. Shipment growth is expected to be slower, at about 1.5%, in Europe. Volume in the company’s European operations is affected due to operational issues in France and slower ramp up following blast furnace reline in Poland. Shipments from the company’s ACIS segment would likely decrease by 5.0% year-on-year, mainly due to lower steel shipments in Kazakhstan and South Africa. The ongoing upgrade at the company’s facility in Ukraine has also adversely impacted supply in the region.
The winter cuts in China during Q4 2018 is likely to benefit ArcelorMittal in the form of better price realization. Mining segment revenue is also expected to rise due to higher realized price of iron ore during the year, along with high coal and iron ore output from the company’s facilities.
The company’s bottom line is expected to grow on the back of cost reduction due to operational efficiency. Also, net interest expense is expected to be lower due to early debt repayment. Net interest expense was lower at $475 million for first nine months of 2018, as compared to $635 million for the corresponding period of 2017, driven by debt repayment and lower cost of debt. In line with management’s expectations, we project full year 2018 net interest expense of approximately $0.6 billion, lower than $0.9 billion in 2017, reflecting the benefits of liability management exercises completed in 2017 and 2018. Reduced cost will likely help ArcelorMittal end 2018 with a net income margin of about 8.0%, higher than 6.7% in 2017.
Based on expectations of high steel demand from emerging economies like India and China, along with higher prices, we believe that the company will grow further in 2019. Additionally, ArcelorMittal has emerged as the single largest bidder for Essar Steel, providing exposure to the Indian market. After the acquisition of Essar Steel (subject to regulatory approvals), ArcelorMittal is expected to benefit with its foray into one of the largest steel markets, thus driving its revenue and earnings higher over the next two years.