Severstal Misses Forecast on Earnings Amid Rising Costs

Severstal, the country's largest steelmaker, dropped the most in six months on Monday in Moscow trading, after earnings missed analyst estimates and production costs increased.

The company fell after saying earnings before interest, tax, depreciation and amortization had increased 25 percent to $3.68 billion. That was less than estimates, including the $3.9 billion predicted by Sergei Donskoi at Troika Dialog.

"Severstal's results are quite weak, with EBITDA considerably lower than I expected, and lower than consensus forecast, probably due to cost inflation," said Donskoi, who has a "buy" recommendation on Severstal.

The steelmaker is paying more for labor and energy, and costs rose 23 percent to $10.5 billion in 2007. It plans to reduce expenses in Russia by cutting staff and savings on energy and materials, according to a presentation posted Monday on its web site.

Severstal may eliminate 2,500 to 3,000 jobs at its main mill in Cherepovets this year as it spins off and outsources its service and repairs operations, controlling shareholder and chief executive Alexei Mordashov said in a conference call Monday. The company, which employs around 31,000 people in Cherepovets, cut 500 jobs there last year, he said.

It fell 6.8 percent to 590 rubles on the MICEX exchange. The stock has advanced 5.6 percent this year, valuing the company at 595 billion rubles ($25.3 billion).

The company said it had been able to pass on cost increases to its customers. Net income rose 33 percent to $1.94 billion, or $1.92 per share, and sales advanced 22 percent to $15.2 billion. The company increased its full-year dividend to 77 cents per share, from 39 cents.

"All our businesses posted considerable gains during the year," Mordashov said.

Its North American earnings dropped 85 percent to $21 million.