Plunge in iron ore prices and rising steel exports from Asia have created a very challenging environment for steel and iron ore companies. Analysts have cut estimates for the world’s largest steel maker after disappointing results, sending the stock back to Zacks Rank # 5 (Strong Sell).

About the Company

Headquartered in Luxembourg, ArcelorMittal (MT - Analyst Report) is world’s largest steel maker by output with presence in more than 60 countries. The company is also the one of the largest producers of iron ore in the world.

Disappointing Fourth Quarter Results and Guidance

The company reported net loss of $955 million for Q4, which was better than the loss of $1.2 billion in the same quarter a year ago.  However, adjusted loss for the quarter was $0.43 per share, much worse than the Zacks Consensus Estimate. Revenues were down 5.7% year over year to $18.7 billion for the quarter.

For FY 2014, net loss was $1.1 billion and adjusted loss was $0.51 per share, missing the Zacks Consensus Estimate.

The company expects EBITDA for 2015 to in be in the range of $6.5 billion to $7 billion, down from $7.2 billion in 2014. Lower iron ore prices are expected to continue to weigh on its mining business and affect profits this year, though the company expects a pick-up in demand from the auto industry.
 
Downward Revisions
 
After poor results, analysts have revised their estimates for the company sharply downwards. Zacks Consensus Estimates for the current and the next fiscal year are ($0.09) per share and $0.45 per share, respectively as of now, down from $0.17 per share and $0.51 per share 30 days ago.
 
The Bottom Line

The global steel industry is going through challenging times. Demand is down sharply in China and Europe. Intense competition due to cheaper exports from Asian countries and overcapacity has led to a steep decline in prices. Further, the collapse in oil prices has led to a decline in steel imports by US energy companies.

 The Steel Producers industry is currently ranked 213 out of 265 Zacks industries (bottom 20%). It is safer to avoid investing in this space till the outlook improves.