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Companhia Siderurgica's (SID) Earnings Improve Y/Y in Q1

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Companhia Siderúrgica Nacional SID or CSN reported impressive financial results for the first quarter of 2018. Net earnings from continuing operations were approximately R$1,486.5 million ($457.4 million), significantly higher than R$117.6 million ($37.5 million) recorded in the year-ago quarter.

Earnings per share in the reported quarter were R$1.07 or roughly 33 cents per American Depository Receipt (ADR). This compared favorably with the year-ago quarter’s earnings of R$0.08 or 3 cents per ADR.

Revenues Improve Y/Y

In the reported quarter, the Brazilian steelmaker CSN’s net revenues were R$5,066 million ($1,558.8 million), reflecting growth of 14.8% year over year.

Domestic revenues increased 26.4% year over year to R$2,515.3 ($773.9 million), representing 49.7% of net revenues. International business flourished with foreign market revenues recording an increase of 5.3% year over year to R$2,550.7 million ($784.8 million), which represented 50.3% of net revenues.

The company operates through five business segments. The segments’ results for the first quarter are briefly mentioned below:

Steel: The segment’s revenues totaled R$3,674 million ($1,130.5 million), reflecting year-over-year growth of 19.6%.

Slab production grew 5% year over year to roughly 1,050 thousand tons, while the manufacturing of flat-rolled products increased 12% year over year to 978 thousand tons. Manufacturing of long-rolled products declined 25% to 40 thousand tons.

Steel sales volume increased 7% year over year to 1,277 thousand tons, of which, domestic sales accounted for 61.2%, overseas subsidiaries for about 34.1% and exports for roughly 4.7%. Sequentially, steel sales volume has increased 2%.

Mining: The segment generated revenues of R$1,152 million ($354.5 million), down 1.9% year over year.

Iron-ore sales volume were up 3% year over year to 7,474 thousand tons, of which, domestic sales accounted for 17.5% and international sales for roughly 82.5%. However, iron-ore sales decreased 22% compared with the previous quarter.

Logistics: Revenues were R$397 million ($122.2 million), up 4.7% year over year.

Cement: The segment’s revenues totaled R$131 million ($40.3 million), reflecting year-over-year growth of 4%. Cement production declined 5% year over year to 775 thousand tons, while sales volume decreased 2% to 806 thousand tons.

Energy: The segment’s revenues were R$91 million ($28 million), up 1.1% year over year.

Margins Decline Due to Rise in Costs

In the quarter under review, CSN’s cost of sales increased 19.1% year over year to R$3,684.7 million ($1,133.8 million). It represented 72.7% of net revenues versus 70.1% in the year-ago quarter. Gross margin decreased 260 basis points (bps) to 27.3%.

Selling expenses were R$454.9 million ($140 million), reflecting year-over-year growth of 23.7%. As a percentage of net revenues, it was 9% versus 8.3% in the year-ago quarter. General and administrative expenses decreased 8.9% year over year to R$102.4 million ($31.5 million). It represented 2% of net revenues versus 2.5% in the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 7% year over year to R$1,242 million ($382.2 million) with a margin of 24.5% compared with 30.2% in the year-ago quarter. Net financial results were an expense of R$593.7 million ($182.7 million), up 19.4% year over year.

Balance Sheet & Cash Flow

Exiting the first quarter of 2018, CSN had cash and cash equivalents of R$2,963.2 million ($897.9 million), down from R$4,147.3 million ($1,253 million) at the end of the previous quarter. Borrowings and financing increased 1.5% sequentially to R$23,335.3 million ($7,071.3 million). Net debt to adjusted EBITDA ratio was 5.82, up from 5.45 in the year-ago quarter.

In the reported quarter, the company generated net cash of R$459.2 million ($141.3 million) from its operating activities, down 3.9% year over year. Capital spent on fixed assets decreased 35% year over year to R$223.3 million ($68.7 million).

Zacks Rank & Stocks to Consider

CSN currently has $3.7 billion market capitalization and carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the industry include Ternium S.A. TX, ArcelorMittal MT and Nucor Corporation NUE. While Ternium S.A. sports a Zacks Rank #1 (Strong Buy), both ArcelorMittal and Nucor Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for each of these stocks improved for the current year and the next year. Also, average positive earnings surprise for last four quarters was 50.23% for Ternium, 40.07% for ArcelorMittal and 3.78% for Nucor Corporation.

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