ArcelorMittal Earnings Disappoint, Cuts Output

ArcelorMittal, the world's largest steelmaker, forecast a weaker final quarter, increased production cuts and put growth plans on hold after it announced third-quarter results missed forecasts, sending it shares down 12 percent in early trading.

The company announced on Wednesday a series of measures, including temporary output cuts of 30 percent, from an initial 15 percent, a pause in its growth strategy, deeper cost cuts and a reduction in debt, in response to the economic slowdown.

Earnings before interest, tax, depreciation and amortization (EBITDA) in the July to September period rose 76 percent year-on-year to $8.6 billion, but came in below the average expectation of $8.9 billion in a Reuters poll of nine analysts.

ArcelorMittal, roughly three times bigger than its closest rival Nippon Steel, had aimed to exceed a figure of $8.5 billion.

Sales rose 38 percent to $35.2 billion, below estimates of $38.8 billion.

Net profit rose 29 percent to $3.8 billion, way short of a forecast $5.9 billion, although it included a $1.6 billion charge for agreeing a new U.S. 4-year labor contract.

Chief Financial Officer Aditya Mittal said the company still believed the steel industry would grow by between 3 and 5 percent per year after the current slowdown.

He added that exports from China, which have pressured prices in the past, had actually reduced.

"The primary driver of the steel environment today remains the real economy," he told a conference call.

ArcelorMittal forecast EBITDA of $2.5-3.0 billion for the fourth quarter.

ArcelorMittal weathered the initial phase of the financial crisis as steel demand and prices were strong, but the company's shares have dropped by more than 60 percent since their peak on June 6 as the commodity boom ended.

Steel prices have come under pressure as the global economy has slowed, prompting the group to scale back production further to 30 percent from the fourth quarter to accelerate inventory reduction.

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"We expect them to continue until the early part of 2009, but we do expect things to stabilize in 2009," Aditya Mittal told a conference call.

ArcelorMittal also said it planned to pause its expansion plans, although it did not give further details.

"For 2009, we are continuing primarily with projects which have started or are close to completion. As the credit situation improves, as the real economy comes back, we'll go back to our original growth plan, so I would expect this to be a temporary delay," Aditya Mittal said.

The group also said it was targeting increased management gains to $5 billion from a previous $4 billion over the next five years as well as $10 billion net debt reduction by the end of 2009 to increase its financial flexibility.

The group maintained its base dividend at $1.50 per share for 2009.

Since its creation in 2006, ArcelorMittal has aggressively pursued consolidation, with a flurry of investments and acquisitions in developing countries such as Senegal, India, Russia and China as well as in mature economies.

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