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Brazilian steel maker, Companhia Siderurgica Nacional (SID - Analyst Report), or CSN, reported improved results for the first quarter 2014. Net income was R$55.3 million (US$23.4 million), up 102.5% year over year.

Earnings per share were R$0.04 or US$0.02 per American Depositary Receipt (ADR).   

Revenue

Companhia Siderurgica Nacional generated net revenues of R$3,490.5 million (US$1,479.0 million) in the quarter, reflecting an increase of 22.3% year over year. The year-over-year improvement was driven by healthy performance in Companhia Siderurgica Nacional's steel and mining businesses.

Of the total revenues, Companhia Siderurgica Nacional generated roughly 72.1% in the domestic markets while the rest were sourced internationally.

Crude steel production was around 1.2 million tons, up 3% year over year while rolled steel production decreased 3% to 1.1 million tons. Steel sales volume declined 10% year over year to roughly 1.4 million tons, of which domestic sales accounted for 73%, overseas subsidiaries about 25% and direct exports around 2%. Iron ore sales were up 54% year over year to 6.4 million tons.

Steel revenues comprised 64.1% of total revenue in the first quarter 2014 reflecting an increase of 6.1% year over year. Revenues generated from the Mining segment increased 66.9% accounting for 25.6% of total revenue.

The Logistics segment contributed 6.9% to total revenue and revenues generated by this segment were up 28.0% compared with the year-ago quarter. Cement revenues were flat year over year and settled at 2.1% of the total. Revenues from the Energy segment accounted for 1.3% of total revenue and reflected a 38.3% year-over-year increase.

Margins

Companhia Siderurgica Nacional recorded a 4.8% year over year increase in cost of goods that came in at R$2,311.2 million (US$979.3 million). Higher cost of sales partially offset the top line improvement leading to a gross margin expansion of 11% year over year to 34%.

As a percentage of net revenue, selling expenses decreased by 103 basis points (bps) year over year, while general and administrative expenses decreased by 30 bps year over year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter improved 60.0% to R$1,440.0 million (US$610.2 million) with a margin of 32.9% compared with 24.8% in the prior-year quarter. Net financial result was an expense of R$578.8 million (US$345.3 million), up 24.4% year over year.
    
Balance Sheet

Exiting the first quarter 2014, Companhia Siderurgica Nacional had cash and cash equivalents of R$10,000.4 million (US$4,425.0 million), flat sequentially. Loans, financing and debentures and net of current portion decreased 3.8% to R$24,159.6 million (US$10,690.1 million).

Cash Flow

In the first quarter 2014, Companhia Siderurgica Nacional generated net cash of R$576.2 million (US$244.2 million) from operating activities, reflecting a 27.7% sequential decline. Capital spent on fixed/tangible assets additions was R$298.7 million (US$126.6 million), down 59.7% sequentially.

Companhia Siderurgica Nacional currently has a market capitalization of $6.0 billion and carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the steel industry include ArcelorMittal South Africa Ltd. (AMSIY), ThyssenKrupp AG (TYEKF) and General Steel Holdings, Inc. . All these companies hold a Zacks Rank #2 (Buy).

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