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Steel giant ArcelorMittal (MT - Analyst Report) posted a net loss of $0.8 billion or 44 cents per share in the second quarter of 2013 compared with a net income of $1 billion or 66 cents per share a year ago. Barring one-time items (restructuring and impairment charges), loss was 32 cents per share. Analysts polled by Zacks were expecting earnings of 9 cents a share on average for the quarter. The results were impacted by lower pricing and weak demand.

Revenues declined 10.1% year over year to $20.2 billion in the reported quarter and missed the Zacks Consensus estimate of $20.7 billion. Sales increased 2.3% on a sequential basis due to higher steel shipment volumes. Shipments declined 1.8% year over year to 21.3 million metric tons in the quarter.

Segment Review

Flat Carbon Americas: Production declined 7.1% year over year and 9.8% sequentially to 5.6 million tons. The sequential decline was the result of labor issues at Burns Harbor and operational incidents at Indiana Harbor East and West due to which there was a considerable drop in Flat USA. Average selling prices went down 5.7% year over year to $831 per ton. Sales went down 10.7% annually and 1.5% sequentially to $4,788 million due to lower shipments in Flat USA.

Flat Carbon Europe: Revenues slipped 4.4% year over year but increased 1% sequentially to $6,903 million mainly due to higher steel shipment volumes as prices remained stable. Steel production increased 4.7% from the last year and 2.8% sequentially. Average selling prices went down 6.1% from the last year to $830 per ton.

Long Carbon Americas and Europe: Revenues from the segment dropped 4.9% year over year and increased 6.2% sequentially to $5,420 million. The sequential increase in sales was led by higher volumes. Average selling prices fell around 4.2% year over year to $848 per ton. Production declined 2.4% on a year-over-year basis but increased 0.3% sequentially.

Asia Africa and CIS (AACIS): Sales tumbled 21% from the year-ago quarter and were down 0.7% from the previous quarter to $2,115 million. The sequential decline represented weak CIS market. Production was almost flat versus the year-ago quarter and increased 13.4% sequentially to 3.7 million tons. The sequential increase resulted from the recovery in South Africa following the fire at Vanderbijlpark that negatively impacted production in the first quarter. Average selling price was $623 per ton compared with $687 per ton in the year-ago quarter.

Distribution Solutions: Revenues declined almost 16.2% year over year but increased 1.2% on a sequential basis to $3,597 million. The sequential increase was due to higher average steel selling prices. Average steel selling prices declined 5.2% year over year to $872 per ton.

Mining: Iron ore production rose 4.2% year over year and 14.5% from the previous quarter to 15 million tons in the reported quarter due to higher production at the Canadian operations and in Liberia. Coal production declined 4.8% year over year and was flat sequentially at 2 million tons. Revenues fell 15.7% year over year but increased 12.7% sequentially to $1,351 million.

Balance Sheet

Cash and cash equivalents (including restricted cash) amounted to $6.9 billion as of Jun 30, 2013, compared with $4.5 billion as of Jun 30, 2012. The company’s long term debt was $18.9 billion as of Jun 30, 2013, as compared with $21.7 billion as of Jun 30, 2012.

Outlook

ArcelorMittal reduced its outlook for earnings before interest, tax, depreciation and amortization (EBITDA) to greater than $6.5 billion from greater than $7.1 billion for 2013 due to weak demand and lower raw material prices. The company expects that profitability will be driven by 1%-2% increase in steel shipments, about 20% increase in marketable iron ore shipments, and the realized benefits from Asset Optimization and Management Gains initiatives.

ArcelorMittal expects to spend about $3.7 billion on capital expenditures in 2013. Due to an expected investment in working capital and the payment of the annual dividend, net debt is expected to increase in the second half of 2013 to roughly $17 billion. Medium term net debt is expected to be $15 billion.

ArcelorMittal currently maintains a Zacks Rank #4 (Sell).

Other companies in the steel industry with favorable Zacks Rank are Nippon Steel & Sumitomo Metal Corporation , Ternium S.A. (TX - Snapshot Report) and Kobe Steel Ltd. . While Nippon Steel and Ternium maintain a Zacks Rank #1 (Strong Buy), Kobe Steel holds a Zacks Rank #2 (Buy).

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