GGB' 2Q Up on Y/Y comp.

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Brazilian steel producer, Gerdau S.A. (GGB) reported its financial results for the second quarter of 2012 on August 2, 2012. The company’s net income increased 9% year over year to R$549 million (US$280.1 million). The bottom-line results were largely impacted by higher cost of sales that offset revenue improvement reported in the quarter.

Revenue

Net revenue in the quarter jumped 10.7% year over year to R$9,975 million (US$5,089.3 million).  

As for the net revenue, Brazilian business accounted for about 37.3% and registered a 4% increase over the year-ago quarter. North American revenue increased 18% and contributed 31.9% to net revenue while Latin American revenue represented 12.8% of net revenue and spiked 33% over the year-ago period. Revenue from Specialty Steel grew 2% year over year and accounted for about 20.8% of net revenue.

Crude steel production in the quarter declined 2% year over year to 5,046 million tons, especially due to disruption in Brazilian production with units being largely affected by heavy rainfall. Shipments were also down 2% year over year to 4,778 million tons; with business weal in all business operations. However, Latin American business showed strength in the quarter.

Margins

Gross margin in the quarter went down by 130 basis points to settle at 14.3%, as higher revenue growth was offset by a 12.4% increase in cost of sales. Selling expenses, as a percentage of revenue, were at 1.50%; down compared with 1.74% in the year-ago quarter. General and administrative expenses dipped 9 basis points year over year to 4.88%.

EBITDA at R$1,244 million (US$634.7 million) was down 5% year over year with a margin of 12% in the quarter. Operating margin was 7.9% versus 9.7% in the year-ago quarter.

Balance Sheet

Exiting the second quarter, Gerdau had cash and cash equivalents of approximately R$1,664.1 million (US$800.0 million), reflecting a sequential increase of 22.5%. Long-term debt increased 3.9% to R$11,296.6 million (US$5,431.1 million).

Cash Flow

Net cash flow from operating activities in the second quarter 2012 was R$1,046.5 million (US$533.9 million) as against cash outflow of R$874.1 million (US$549.7 million) in the year-ago quarter. Capital spending more than doubled in the quarter to reach R$850.1 million (US$433.7 million).

Gerdau S.A., one of the foremost steel producers in Brazil, plans to spend roughly R$10.3 billion for the period from 2012 to 2016. The company faces stiff competition from its peers like Companhia Siderurgica Nacional (SID), Arcelor Mittal (MT) and Usinas Sider (USNZY.PK).

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