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Gerdau Q4 Earnings Fall Y/Y, Revenues Hurt by Higher Costs - Analyst Blog

Zacks Equity Research

Gerdau S.A. GGB reported disappointing fourth-quarter 2014 results. Net income came in at R$393 million (US$154.7 million), down 20.1% year over year. The year-over-year decline was the result of weak revenue growth, partially offset by higher costs of sales and operating expenses.

For 2014, the company’s net income was R$1,488.4 million (US$633.4 million), down 12.1% year over year.


Gerdau generated net sales of R$10,843 million (US$4,268.9 million) in the quarter, reflecting an increase of 5.1% from the year-ago tally.

The company operates its businesses under the following heads:

Revenues sourced from the Brazil BO (business operation) accounted for 32.8% of net revenue in the quarter, declining 3% year over year; while that from the North America BO represented roughly 32.2% of net revenue, rising 13.3%. The Latin America BO contributed 13% of net revenue, up 5.3% year over year.

Revenues from Special Steel BO climbed 2.9% and accounted for 19.8% of net revenue. The newly added Iron Ore BO recorded a revenue decline of 45.2%, representing 2.2% of net revenue.  

Crude steel production in the quarter declined 2.8% year over year to 4,323 million tons, while shipments fell 3.4% to 4,399 million tons.

For 2014, Gerdau’s net sales totaled R$42,546 million (US$18,104.7 million), up 6.7% year over year.


Gerdau’s cost of sales rose 6.6% year over year and as a percentage of net revenue, came in at 88.2% versus 86.9% in the year-ago quarter. The top-line improvement was more than offset by an increase in costs, contracting the gross margin by 130 basis points (bps) to 11.8%.
Selling expenses, as a percentage of revenues, inched down 10 bps to 1.5%; while general and administrative expenses stood at 4.8%, down 10 bps year over year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,238 million (US$487.4 million) in the quarter, down 9.6% year over year. Operating margin was 8.7% versus 7.8% in the year-ago quarter.

Balance Sheet

Exiting fourth-quarter 2014, Gerdau had cash and cash equivalents of R$3,050 million (US$1,138.1 million) versus R$2,872.1 million (US$1,181.9 million) in the preceding quarter. Long-term debt increased to R$17,148.6 million (US$6,398.7 million) from R$16,130.5 million (US$6,638.1 million) in third-quarter 2014.

Cash Flow

In 2014, Gerdau generated cash of R$2,570.9 million (US$1,094 million) from its operating activities, down 37.3% year over year. Capital spending totaled R$2,266.7 million (US$964.6 million), declining 12.8% year over year.

During the period, Gerdau’s dividends and interest on capital payment amounted to R$455.1 million (US$193.7 million).
Gerdau, with a market capitalization of $6.1 billion, currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the industry include ThyssenKrupp AG TYEKF, Kobe Steel Ltd. KBSTY and Ossen Innovation Co., Ltd. OSN. While ThyssenKrupp sports a Zacks Rank #1 (Strong Buy), both Kobe Steel and Ossen Innovation hold a Zacks Rank #2 (Buy).

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