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Brazilian steel maker, Gerdau S.A. (GGB - Analyst Report) reported impressive results for fourth-quarter 2013 on Feb 21. Net income in the quarter surged 244.1% year over year to R$491.6 million (US$216.6 million).

For 2013, Gerdau reported net income of R$1,693.7 million (US$787.8 million), up 13.2% year over year.


Gerdau generated net revenue of R$10,321.0 million (US$4,546.7 million), reflecting an increase of 14.8% year over year.

Gerdau’s Brazilian business accounted for about 38.6% of net revenue in the quarter and registered an 11.1% year-over-year increase. Revenues generated in North America increased 14.5% and contributed 30.1% to net revenue, while Latin American revenues represented 14.2% of net revenue and increased 20.1% year over year. Revenues from Special Steel business operations increased 19.3% year over year and accounted for about 19.8% of net revenue.

Crude steel production increased 6.2% year over year to 4,446 million tons in the quarter. Production in Brazil fell 0.6%, while an increase of 8.7% was recorded in North America. Production in Latin America grew 4.4%, while Specialty Steel production in the quarter reflected an increase of 19.8%. Shipments grew 5.5% year over year to 4,555 million tons.

In 2013, net sales generated were R$39,863.0 million (US$18,540.9 million), up 5.0% compared with 2012.


Gerdau’s gross margin in the quarter rose 180 basis points (bps) to 13.1% due to revenue increase, offset partially by a 12.6% increase in cost of sales. Selling expenses, as a percentage of revenues, were 1.6% versus 1.7% in the year-ago quarter. General and administrative expenses decreased 10 bps year over year to 4.9%.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,370.0 million (US$603.5 million), up 53.8% year over year with a margin of 13.3% in the quarter. Operating margin was 7.8% versus 4.7% in the year-ago quarter.

Balance Sheet

Exiting fourth-quarter 2013, Gerdau’s cash and cash equivalents were up 6.8% sequentially to R$2,099.2 million (US$893.3 million). Long-term debt was at R$14,481.5 million (US$6,162.3 million), up 6.3% from the preceding quarter.

Cash Flow

Gerdau generated approximately R$4,098.4 million (US$1,906.2 million) of net cash from operating activities in 2013, down 5.7% from 2012. Capital spent on additions of property, plant and equipment decreased 16.9% to R$2,598.3 million (US$1,208.5 million). Of the total capital spending, the company invested roughly 58.9% in its Brazilian operations, 20.2% in Special Steel, 14.2% in North American operations and 6.7% in Latin American operations.

Gerdau currently has a market capitalization of $10.9 billion and carries a Zacks Rank #4 (Sell). Some better-ranked companies in the industry include AK Steel Holding Corporation (AKS - Analyst Report), United States Steel Corp. (X - Analyst Report) and General Steel Holdings, Inc. , all of which hold a Zacks Rank #2 (Buy).

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