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Gerdau's Q2 Earnings Plummet

Zacks Equity Research

Brazilian steel producer Gerdau S.A. (GGB) reported disappointing second quarter 2013 results as net income declined 26.9% year over year to R$401.0 million (US$194.7 million).


Net revenue in the second quarter plummeted 0.9% year over year to R$9,882.5 million (US$4,797.3 million).

As for the net revenue, Brazilian business of Gerdau accounted for about 37.2% and registered 1.2% year over year decline. Revenue generated in North America decreased 2.9% and contributed 31.3% to net revenue while Latin American revenue represented 13.5% of net revenue and increased 4.6% year over year. Revenue generated from Specialty Steel increased 2.5% year over year and accounted for about 21.5% of net revenue.

Crude steel production fell 7.9% year over year to 4,646 million tons in the quarter due primarily to weak performances in all operating regions. Production in Brazil declined 3% while a respective 11% and 17.2% decline was noticed in North America and Latin America. Specialty Steel production was down 6.4%. Shipments were also down 3% year over year and settled at 4,634 million tons.


Gerdau’s gross margin in the quarter went down 70 basis points to settle at 13.6% due to marginal decline in revenue and an almost flat cost of sales. Selling expenses, as a percentage of revenue, were at 1.7% versus 1.5% in the year-ago quarter. General and administrative expenses decreased 10 basis points year over year to 4.8%.

EBITDA at R$1,196.0 million (US$580.6 million) was down 3.9% year over year with a margin of 12.1% in the quarter. Operating margin was 7.3% versus 7.9% in the year-ago quarter.
Balance Sheet

Exiting the second quarter 2013, Gerdau’s cash and cash equivalents were up 17% sequentially and came in at R$1,239.2 million (US$555.7 million). Long-term debt at R$13,454.3 million (US$6,033.3 million) registered 19% sequential increase.

Cash Flow

Gerdau generated approximately R$906.8 million (US$440.2 million) net cash from operating activities, down 13.3% from the year-ago quarter. Capital spending went down 27.1% to R$620.1 million (US$301.0 million).

Gerdau S.A., one of the leading steel producers in Brazil, plans to spend roughly R$8.5 billion for the period from 2013 to 2017.

Gerdau currently has a $11.2 billion market capitalization and the stock carries a Zacks Rank #3 (Hold). Other stocks to look out for in the industry are Nippon Steel & Sumitomo Metal Corporation (NSSMY), with a Zacks Rank #1 (Strong Buy) while Ternium S.A. (TX) and Kobe Steel Ltd. (KBSTY), each come with Zacks Rank #2 (Buy).

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