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Earnings Plummet at Gerdau in 1Q

Brazilian steel producer Gerdau S.A. (GGB - Analyst Report) reported disappointing first quarter 2013 results with net income of R$160 million (US$80 million), down 60% year over year.

Revenue

Net revenue in the first quarter plummeted 0.4% year over year to R$9,165.6 million (US$4,582.8 million).

As for the net revenue, Brazilian business of Gerdau accounted for about 37.7% and registered 7% growth over the year-ago quarter. North American revenue decreased 7% and contributed 31.9% to net revenue while Latin American revenue represented 12.5% of net revenue and was flat year over year. Revenue from Specialty Steel declined 2% year over year and accounted for about 19.8 % of net revenue.

Crude steel production fell 11% year over year to R$4,410 million tons in the quarter due primarily to weak performances in all operating regions. Production in Brazil declined 2% while a respective 22% and 9% decline was noticed in North America and Latin America. Specialty Steel production was down 2%. Shipments were also down 4% year over year settling at 4,555 million tons.

Margins

Gross margin of Gerdau in the quarter went down 210 basis points to settle at 9.9% due to marginal decline in revenue and 2.0% increase in cost of sales. Selling expenses, as a percentage of revenue, were at 1.6% versus 1.4% in the year-ago quarter. General and administrative expenses increased 20 basis points year over year to 5.3%.

EBITDA at R$805.0 million (US$402.5 million) was down 20% year over year with a margin of 9% in the quarter. Operating margin was 3.7% versus 6.2% in the year-ago quarter.
 
Balance Sheet

Exiting the first quarter 2013, Gerdau had cash and cash equivalents of approximately R$1,059.4 million (US$524.5 million) versus R$1,437.2 million (US$701.1 million) in the previous quarter. Long-term debt decreased 3.6% to R$11,304.2 million (US$5,596.1 million).

Cash Flow

Gerdau generated approximately R$466.0 million (US$233.0 million) net cash from operating activities, down 42.9% from the year-ago quarter. Capital spending went down 17.3% to R$571.5 million (US$285.8 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 #3 (Hold). Other stocks to look out for in the industry are Ternium S.A. (TX - Snapshot Report), with a Zacks Rank #1 (Strong Buy) while LB Foster Co. (FSTR - Analyst Report) and Angang Steel Company Limited (ANGGY), each with a Zacks Rank #2 (Buy).

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