GGB Posts Weak 2012 Results

Brazilian steel producer, Gerdau S.A. (GGB - Analyst Report) reported disappointing financial results for the fourth quarter and year 2012, on February 21, 2013. The company’s net income at R$143 million (US$69.4 million) represented a 70% decline over the year-ago quarter.

For 2012, net income plummeted 29% to R$1,496 million (US$726.2 million).

Revenue

Net revenue in the fourth quarter plummeted 1% year over year to R$8,988.0 million (US$4,363.1 million).

As for the net revenue, Brazilian business accounted for about 39.9% and registered a 1% growth over the year-ago quarter. North American revenue decreased 4% and contributed 30.1% to net revenue while Latin American revenue represented 13.6% of net revenue and spiked 14% over the year-ago period. Revenue from Specialty Steel declined 8% year over year and accounted for about 19.1% of net revenue.

Crude steel production was 4,186 million tons in the quarter, down 12% year over year due primarily to weak performances in all operating regions. Production in Brazil declined 9% while a respective 15% and 1% decline was noticed in North America and Latin America. Specialty Steel production was down 16%. Shipments were also down 8% year over year to 4,317 million tons, with dismal performance in all business operations.

For 2012, net revenue was R$37,982 million (US$19,477.9 million), up 7% year over year.

Margins

Gross margin in the quarter went down by 200 basis points to settle at 11.3% as the impact from a fall in revenue was neutralized by a 1.3% increase in cost of sales. Selling expenses, as a percentage of revenue, were at 1.7%, flat year over year while general and administrative expenses dipped 30 basis points year over year to 5.0%.

EBITDA at R$891.0 million (US$432.5 million) was down 13% year over year with a margin of 10% in the quarter. Operating margin was 4.7% versus 6.3% in the year-ago quarter.

Balance Sheet

Exiting the fourth quarter, Gerdau had cash and cash equivalents of approximately R$1,437.2 million (US$701.1 million) versus R$1,665.6 million (US$832.8 million) in the previous quarter. Long-term debt increased 1.3% to R$11,725.9 million (US$5,719.9 million).

Cash Flow

Net cash generated from operating activities in 2012 was R$4,344.0 million (US$2,119.0 million), up 154.0% year over year. Capital spending increased 59.4% to R$3,127.3 million (US$1,525.5 million).

Gerdau S.A., one of the foremost steel producers in Brazil, plans to spend roughly R$8.5 billion for the period from 2013 to 2017. The stock currently has a Zacks Rank #2 (Buy). Other stocks to look out for in the industry are Companhia Siderurgica Nacional (SID - Analyst Report), Commercial Metals Company (CMC - Snapshot Report) and Gibraltar Industries, Inc. (ROCK - Analyst Report), each with a Zacks Rank #2 (Buy).