Gerdau profit beats estimates; strength in Brazil helps


By Alberto Alerigi and Guillermo Parra-Bernal

SAO PAULO, Oct 31 (Reuters) - Gerdau SA ,the largest steelmaker in the Americas, on Thursday reported ahigher-than-expected quarterly profit, with rising sales volumesand cost controls in Brazil offsetting declining margins inNorth America, Europe and India.

The Porto Alegre, Brazil-based company's third-quarter netincome rose about 60 percent to 642 million reais ($293 million)from a year earlier and the prior three months. The averageprofit estimate from a Thomson Reuters poll of six analysts was546.5 million reais.

Like the third-quarter results that flat steelmaker UsinasSiderúrgicas de Minas Gerais SA, or Usiminas,released this week, Gerdau's reflected an improved sales mix,higher operating earnings on a sequential basis and signs thatsales, general and administrative expense controls are bearingfruit.

Yet rising costs in Gerdau's North American unit, teethingproblems at a mill in India opened earlier this year, and aweaker Brazilian real sparked a jump in financialexpenses that weighed down earnings. Gross debt rose slightly ona quarter-on-quarter basis.

"The Brazil business unit was the main driver ofperformance," Rodolfo de Angele, an analyst with JPMorganSecurities in São Paulo, wrote in a client note.

According to de Angele, an 8 percent rise in volumes fromthe prior quarter and a 6 percent drop in production coststriggered a 31 percent surge in earnings before interest, tax,depreciation and amortization for the Brazil unit.

Preferred shares of Gerdau, the company's most widely tradedclass of stock, rose 3.3 percent to 17.37 reais. The stock isdown about 23 percent this year.

Management plans to discuss the earnings on a conferencecall later in the day.

Revenue for Gerdau, which is also Brazil's biggest steelproducer by volume, came in at 10.49 billion reais, up 6.2percent from the second quarter. That compares with an estimateof 10.97 billion reais in the poll.

Cost of goods sold rose 4.9 percent from the prior quarter,much less than the 9 percent expected in the poll, and climbed3.9 percent on an annual basis. Expenses rose 5.7 percentsequentially and 6.9 percent from a year earlier, the filingsaid.

Consolidated EBITDA at Gerdau's four main business segmentscame in at 1.41 billion reais, beating analysts' estimates of1.36 million reais.

Margins rose for the second quarter in seven, with EBITDAclimbing to 13.5 percent of revenue from 12.2 percent in thesecond quarter.

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