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Brazilian steel producer, Gerdau S.A. (GGB - Analyst Report) reported its financial results for the third quarter of 2012, on November 1, 2012. The company’s net income decreased 43% year over year to R$408.4 million (US$204.2 million). The bottom-line results were largely impacted by higher cost of sales, offset partially by better financial results.

Net revenue in the third quarter jumped 9.5% year over year to R$9,819.1 million (US$4,909.6 million).  

As for the net revenue, Brazilian business accounted for about 36.3% and registered a 1% decline over the year-ago quarter. North American revenue increased 28% and contributed 34.8% to net revenue while Latin American revenue represented 13.5% of net revenue and spiked 27% over the year-ago period. Revenue from Specialty Steel declined 6% year over year and accounted for about 17.8% of net revenue.

Crude steel production in the quarter declined 5% year over year to 4,747 million tons, especially due to weaker performance in the Special Steel and disruption in Brazilian production. Shipments were also down 2% year over year to 4,774 million tons; with dismal performance in all business operations, except for North American business that increased 8% in the quarter.


Gross margin in the quarter went down by 270 basis points to settle at 12.2%, as revenue growth was more than offset by a 13.0% increase in cost of sales. Selling expenses, as a percentage of revenue, were at 1.53%; down compared with 1.68% in the year-ago quarter. General and administrative expenses dipped 3 basis points year over year to 4.89%.

EBITDA at R$1,033 million (US$516.5 million) was down 15% year over year with a margin of 11% in the quarter. Operating margin was 5.8% versus 8.7% in the year-ago quarter.
Balance Sheet

Exiting the third quarter, Gerdau had cash and cash equivalents of approximately R$1,665.6 million (US$832.8 million) versus R$1,664.1 million (US$800.0 million) in the previous quarter. Long-term debt increased 2.4% to R$11,571.3 million (US$5,785.7 million).

Cash Flow

Net cash flow from operating activities in the third quarter 2012 was R$1,310.0 million (US$655.0 million) as against a cash inflow of R$337.7 million (US$207.2 million) in the year-ago quarter. Capital spending increased 46.7% to R$903.9 million (US$452.0 million).
Gerdau S.A., one of the foremost steel producers in Brazil, plans to spend roughly R$10.3 billion for the period from 2012 to 2016. The company faces stiff competition from its peers like Companhia Siderurgica Nacional (SID - Analyst Report), Arcelor Mittal (MT - Analyst Report) and Usinas Sider (USNZY.PK).

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