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Brazilian steel maker, Companhia Siderurgica Nacional (SID - Analyst Report), or CSN, reported impressive financial results for the third quarter of 2013. Net earnings increased 216.1% year over year to R$502.9 million (US$220.6 million). Earnings per share were R$0.34 or 15 cents per ADR.

The results comfortably surpassed the Zacks Consensus Estimate of 3 cents per ADR.


CSN’s revenues in the quarter were R$4,661.4 million (US$2,044.5 million), up 23.3% year over year due primarily to healthy performances from the steel, mining and logistics segments. Demand for steel was strong, which in turn triggered demand for iron ore, pushing the mining results higher.

Crude steel produced by CSN in the quarter was roughly 1.3 million tons and rolled steel produced was about 1.2 million tons. Steel sales volume decreased 4% sequentially to roughly 1.5 million tons, of which domestic sales accounted for 77.0%, overseas subsidiaries about 20% and direct exports around 3%. Iron ore sales were up 27% sequentially to 7.7 million tons.
Among CSN's segments, Steel revenue accounted for 59.9% of total revenue and increased 18.5% year over year. Revenue generated from the Mining segment increased 119.1% and accounted for 30.8% of total revenue.

The Logistics segment contributed 6.3% of total revenue and revenue generated was up 12.5% over the year-ago quarter. Cement revenue was flat and settled at 2.0% of the total. Revenue from the Energy segment accounted for 1.0% of total revenue and reflected 28.6% of year over year decline.


Cost of goods sold in the quarter increased 15.1% year over year to R$3,259.2 million (US$1,429.5 million). Gross margin expanded 500 basis points to 30%. As a percentage of net revenue, selling expenses decreased by roughly 90 basis points (bps) year over year while general and administrative expenses fell by 120 bps year over year.

CSN's Adjusted EBITDA in the quarter improved 54.0% to R$1,652.0 million (US$724.6 million) with a margin of 35.4% compared with 28.5% in the year-ago quarter. Net financial results were reflected in an expense of R$597.1 million (US$261.9 million), up 15.7% year over year.
Balance Sheet

Exiting the third quarter 2013, CSN’s cash and cash equivalents decreased 9.2% sequentially to R$11,146.9 million (US$4,998.6 million). Loans, financing and debentures, net of current portion decreased 1.5% to R$27,828.0 million (US$ 12,478.9 million).

Cash Flow

In the third quarter 2013, CSN’s cash generation from operating activities decreased 26.5% year over year to R$608.4 million (US$266.8 million). Capital spend on fixed/tangible assets additions in the quarter was R$786.4 million (US$344.9 million), down 1.4% year over year.

CSN currently has a market capitalization of roughly $8.3 billion and holds a Zacks Rank #1 (Strong Buy). Other stocks to watch out for in the industry are United States Steel Corp. (X - Analyst Report), Ossen Innovation Co., Ltd. and Masco Corporation (MAS - Analyst Report), each with a Zacks Rank #2 (Buy).

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