Why Are ArcelorMittal’s Net Margins So Low?
ArcelorMittal (NYSE:MT) stock has been on a streak, surging over 16% in just the past month following better than expected results for Q1 of 2025, along with a positive outlook for 2025. However, despite the recent euphoria, there’s one critical issue that might take investors by surprise. Arcelor Mittal’s net income margin is very low compared to the industry as well as the sector.
Single-Digit Operating Cash Flows
As of Q1 FY’25, the most recently reported quarter, ArcelorMittal’s net income margin, which refers to accounting profit realized after deduction of operating expenses, non-operating expenses, interest, and taxes, stood at just 5.4%, up from -2.6% in Q4 FY’24 and down from 5.7% in Q1 FY’24. What about operating margins? It stood at 5.6% for the last quarter. That’s far below industry peers. For context, Barrick Gold Corp, another metals and mining company, posted gross margins of around 17.5% and net margins of about 17.4%. Kinross Gold Corporation’s gross margins were high at 26.4%, with net margins above 24%. Diluted EPS declined to $1.04 in Q1 FY’25, down from $1.16 in the same quarter a year ago. See: Buy Or Sell MT Stock?
Why Are Margins So Weak?
ArcelorMittal’s margins are affected by its global operations, especially in Europe, where energy and environmental costs are higher. Additionally, demand recovery has been slower. This is in contrast to U.S.-focused firms like Nucor and Steel Dynamics, which benefit from stronger domestic demand, lower energy prices, and favorable trade protections.
ArcelorMittal is heavily exposed to international and emerging markets, where steel prices are less protected by tariffs or trade barriers. In contrast, U.S. producers like Nucor and Steel Dynamics benefit from domestic market insulation as well as higher average realized steel prices. As a result, ArcelorMittal faces price pressure without matching pricing power.
ArcelorMittal uses a blast furnace (BOF) model in many facilities, which has higher fixed and variable costs (especially with volatile input prices like iron ore or coal) It is less flexible than Electric Arc Furnace (EAF) operations used by competitors like Nucor and Steel Dynamics. When volumes or prices fall, fixed costs weigh more heavily, compressing margins.
The company has taken asset impairments and restructuring charges, particularly in Europe and some legacy operations. These non-operational losses reduce net income margins even if operating cash flow remains stable.
Is MT Stock A Buy?
Investors must be a bit cautious with investing in MT stock. As discussed, operating and net income margins are structurally lower than U.S. peers, indicating lower capital efficiency and profitability. Additionally, sluggish construction and auto demand in Europe limits near-term growth. Lastly, steel is deeply cyclical and vulnerable to macro shocks, especially from China (demand, exports) or global trade policy.
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