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ArcelorMittal to Incur Hefty Charge

MT X

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Steel maker ArcelorMittal (MT - Analyst Report) announced that it will incur a goodwill write down amounting to $4.3 billion for its European businesses in the fourth quarter of 2012. The charge is in accordance with the results of its goodwill impairment test as per the IFRS accounting standards. The write down will be in the form of a non-cash impairment charge.

ArcelorMittal considered weak market conditions in Europe to be responsible for the impairment charge. Steel demand in Europe fell about 8% this year, bringing the cumulative decline in demand to approximately 29% since 2007. However, the company’s U.S. business is performing well where apparent steel consumption is up almost 8% this year and lagging the 2007 level by only 10%.

ArcelorMittal is wary of the situation in Europe and the domino effect it might have on other markets. As a result, the company is focusing on improving its efficiency, productivity, assets optimization and net debt reduction.

Last month, ArcelorMittal posted a net loss of $709 million or 46 cents per share in the third quarter of 2012 compared with a net income of $659 million or 19 cents per share a year ago. The bottom line was hurt by the challenging economic conditions including the slowdown in China as well as lower steel pricing and shipments.

The company’s adjusted loss of 31 cents a share missed the Zacks Consensus Estimate of earnings of 6 cents. The adjusted loss excluded one-time items – impairment and restructuring charges.

Revenues declined 18.5% year over year to $19,723 million, trailing the Zacks Consensus Estimate of $21,189 million. Sales also declined 12.3% on a sequential basis due to lower steel shipment volumes and lower average steel selling prices. Shipments declined 5.7% to 19.9 million metric tons in the quarter.

The company, which competes with U.S. Steel Corp. (X - Analyst Report) and Tata Steel Limited, maintains a Zacks #5 Rank, which translates into a short-term (1 to 3 months) Strong Sell rating. We currently have a long-term (more than 6 months) Underperform recommendation on the shares of ArcelorMittal.

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