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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 a higher-than-expected quarterly profit, with rising sales volumes and cost controls in Brazil offsetting declining margins in North America, Europe and India.

The Porto Alegre, Brazil-based company's third-quarter net income rose about 60 percent to 642 million reais ($293 million) from a year earlier and the prior three months. The average profit estimate from a Thomson Reuters poll of six analysts was 546.5 million reais.

Like the third-quarter results that flat steelmaker Usinas Siderúrgicas 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 that sales, general and administrative expense controls are bearing fruit.

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

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

According to de Angele, an 8 percent rise in volumes from the prior quarter and a 6 percent drop in production costs triggered 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 traded class of stock, rose 3.3 percent to 17.37 reais. The stock is down about 23 percent this year.

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

Revenue for Gerdau, which is also Brazil's biggest steel producer by volume, came in at 10.49 billion reais, up 6.2 percent from the second quarter. That compares with an estimate of 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 climbed 3.9 percent on an annual basis. Expenses rose 5.7 percent sequentially and 6.9 percent from a year earlier, the filing said.

Consolidated EBITDA at Gerdau's four main business segments came in at 1.41 billion reais, beating analysts' estimates of 1.36 million reais.

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