The Zacks Analyst Blog Highlights: ArcelorMittal, U.S. Steel, Nucor, AK Steel and Elizabeth Arden

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Feb 26, 2014, 09:30 ET

CHICAGO, Feb. 26, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the ArcelorMittal (NYSE:MT-Free Report), U.S. Steel (NYSE:X-Free Report), Nucor (NYSE:NUE-Free Report), AK Steel (NYSE:AKS-Free Report) and Elizabeth Arden Inc. (Nasdaq:RDEN-Free Report).

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Here are highlights from Tuesday's Analyst Blog:

Steel Production Slips on Lower China Output

The steel industry started the year on a sluggish note with global crude steel output slipping in January as declines across North America and Asia masked healthy gain in Europe, according to a recent World Steel Association ("WSA") report. A decline in China, the world's largest steel producer, led to lower steel production for the month.

The international trade body for the iron and steel industry said that crude steel output for 65 reporting nations edged down 0.4% year over year in January to 130 million tons (Mt). This compares unfavorably with a 6.3% rise in Dec 2013.

By regions, steel output moved up across the European Union, Other Europe, South America and the Middle East while falling in North America, Asia, the C.I.S., Africa and Oceania.

Output from China fell 3.2% year over year to 61.6 Mt in the reported month as industrial activities slowed before the new year holidays. Japan (the second largest producer) raked in a 6.1% gain in output to 9.4 Mt. Production was flat in India at around 7 Mt while rising 1.9% to 6 Mt in South Korea. Consolidated production dipped 1.5% to 85.8 Mt in Asia.

In North America, crude steel production slipped 0.5% to 7.3 Mt in the U.S., the third-largest steelmaker. Output in Canada and Mexico fell 4.2% and 0.1%, respectively, to around 1.1 Mt and 1.6 Mt, respectively. Total production for the region was down 0.6% to around 10.1 Mt.

In the Europe Union, output from Germany went up 2.2% to 3.7 Mt while surging 31.5% to 1.1 Mt in the UK. Production was flat in France at 1.4 Mt while climbing 27.8% to 2.2 Mt in Italy. Spain saw an 11.1% gain in output to 1.1 Mt. Production from Turkey fell 0.9% to 2.8 Mt. Overall output rose 7.3% in the European Union to 14.4 Mt.

Among other notable producers, output went up 4.1% in Russia to 5.9 Mt while falling 1.4% to 2.7 Mt in Brazil. Ukraine recorded a 13.5% decline to 2.5 Mt.

Crude steel capacity utilization ratio for the reporting countries was 74.4% in January, down from 76.9% a year ago. The ratio, however, improved from 74.2% in Dec 2013.

Challenging steel market fundamentals and weak pricing have been a drag for steel makers globally for the most part of 2013. Oversupply in the industry put pressure on steel prices, crimping margins of major steelmakers including ArcelorMittal (NYSE:MT-Free Report), U.S. Steel (NYSE:X-Free Report), Nucor (NYSE:NUE-Free Report) and AK Steel (NYSE:AKS-Free Report).

According to the WSA, world crude steel production rose 3.5% year over year to 1,607 Mt in 2013 as gains across Asia, Middle East and Africa more than offset declines in other regions.

With the global economy gradually on the mend and activities picking up in automotive and construction sectors, prospects look bright for the steel industry this year. The WSA sees continued recovery in steel demand in 2014. The industry body envisions global steel usage to increase 3.3% in 2014 factoring in higher contributions from developed economies. Improving demand is also expected to perk up steel prices.

A gradually convalescing economy, strength in the auto sector and a rebound in non-residential construction and housing markets are expected to help pull the U.S. steel industry out of its funk in 2014. Moreover, efforts of the Chinese government to rebalance its economy will contribute to the domestic and global steel demand. Signs of stabilization in steel usage in the Eurozone also appear encouraging following a tough 2013, which augurs well for recovery prospects this year.

Elizabeth Arden Downgraded to Strong Sell

Zacks Investment Research downgraded Elizabeth Arden Inc. (Nasdaq:RDEN-Free Report) to a Zacks Rank #5 (Strong Sell) on Feb 22, 2014 following weak results in the second quarter fiscal 2013.

Why the Downgrade?

Elizabeth Arden witnessed sharp downward estimate revisions after reporting weak second-quarter fiscal 2014 results on Feb 5, 2014. Notably, The Miramar, Fla.-based Cosmetics Company withdrew its fiscal 2014 guidance on Jan 21, 2014.

Elizabeth Arden's second-quarter earnings of $1.08 fell short of the year-ago earnings by 31.6% due to lower sales and gross margins. Net sales of $418 million also lagged year-ago results by 10.1% due to lower year-over-year sales in all the geographical segments. Gross profit declined 17.3% year over year to $200.0 million due to lower sales and higher depreciation related to cost of goods sold.

Weak holiday sales due to bad weather conditions in December and January were responsible for the weak results in the reported quarter. Moreover, the company also reported higher inventory due to low traffic in the company's mass retail accounts, and reduced discretionary spending by consumers facing macroeconomic headwinds.

However, both earnings and sales inched past Zacks Consensus Estimate. We would like to remind investors that the company released weak preliminary sales results for the second quarter on Jan 21, 2014 which led to the sharp downward revision of estimates. The actual results were in line with the revised expectations.

The Zacks Consensus Estimate came down 27.2% to $1.07 for the second quarter over the last thirty days. For fiscal 2014 most of the estimates were revised downward over the last thirty days, sinking the Zacks Consensus Estimate by .6% to $2.09.

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