Brazilian steel producer Gerdau S.A. (GGB - Free Report) reported impressive results for third-quarter 2017, with the adjusted net income increasing 52.2% year over year to R$144.9 million ($45.9 million).
The bottom line benefited from higher revenue generation, fall in financial expenses and positive impact of exchange variations. However, increase in cost of sales adversely impacted results.
Higher Steel Shipments Drive Revenues
The quarter’s net sales totaled R$9,476.2 million ($2,998.8 million), surpassing the year-ago tally by 8.9%. The improvement came on the back of higher shipments in the North America and Special Steel business divisions (BD).
The company’s crude steel production in the quarter grew 4.3% year over year to 4.1 million tons while shipments of steel increased 5.4% to 3.9 million tons.
The company reports its revenue results under four heads. The segmental results are briefly described below.
Revenues generated from the Brazil BD increased 9.2% year over year. It accounted for 32.4% of net sales. North America BD sales, accounting for 40.3% of net sales, grew 15.4% while the South America BD revenues, constituting 11.1% of net sales, declined 17% year over year. Revenues from Special Steel BD increased 18.9%, comprising 16.2% of net sales.
Margin Profile Weakens
Gerdau’s cost of sales in the quarter increased 11.1% year over year and represented 89.7% of net sales versus 88% in the year-ago quarter. Rise in cost of sales eroded much of the benefits from increase in revenues. Gross margin fell 170 basis points (bps) to 10.3%.
Selling expenses, as a percentage of net sales, were 1.4% while general and administrative expenses were 2.8%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,166 million ($369 million), down 2.8% year over year. EBITDA margin came in at 12.3%, down from 13.8% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the third quarter, Gerdau’s cash and cash equivalents were R$3,263 million ($1,032.6 million), down 24.2% from R$4,305.4 million ($1,304.7 million) recorded in the preceding quarter. Long-term debt was R$14,130.4 million ($4,471.6 million), down 9.7% sequentially. The company’s net debt to EBITDA ratio fell to 3.4 from 3.6 in the previous quarter.
In the quarter, the company used net cash of R$230.9 million ($73.1 million) for its operating activities versus R$364.1 million ($112 million) generated in the year-ago quarter. Capital spent on purchase of property, plant and equipment decreased 40.5% to R$170.2 million ($53.9 million). Dividend payments in the quarter were R$33.7 million ($10.7 million).
Also, the company announced the approval of R$51.3 million or R$0.03 per share to be paid as dividend to its shareholders on record as of Nov 21. The dividend will be paid on Dec 1.
Gerdau S.A. Price and Consensus
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Brazilian steel producer Gerdau S.A. (GGB - Free Report) reported impressive results for third-quarter 2017, with the adjusted net income increasing 52.2% year over year to R$144.9 million ($45.9 million).
The bottom line benefited from higher revenue generation, fall in financial expenses and positive impact of exchange variations. However, increase in cost of sales adversely impacted results.
Higher Steel Shipments Drive Revenues
The quarter’s net sales totaled R$9,476.2 million ($2,998.8 million), surpassing the year-ago tally by 8.9%. The improvement came on the back of higher shipments in the North America and Special Steel business divisions (BD).
The company’s crude steel production in the quarter grew 4.3% year over year to 4.1 million tons while shipments of steel increased 5.4% to 3.9 million tons.
The company reports its revenue results under four heads. The segmental results are briefly described below.
Revenues generated from the Brazil BD increased 9.2% year over year. It accounted for 32.4% of net sales. North America BD sales, accounting for 40.3% of net sales, grew 15.4% while the South America BD revenues, constituting 11.1% of net sales, declined 17% year over year. Revenues from Special Steel BD increased 18.9%, comprising 16.2% of net sales.
Margin Profile Weakens
Gerdau’s cost of sales in the quarter increased 11.1% year over year and represented 89.7% of net sales versus 88% in the year-ago quarter. Rise in cost of sales eroded much of the benefits from increase in revenues. Gross margin fell 170 basis points (bps) to 10.3%.
Selling expenses, as a percentage of net sales, were 1.4% while general and administrative expenses were 2.8%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,166 million ($369 million), down 2.8% year over year. EBITDA margin came in at 12.3%, down from 13.8% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the third quarter, Gerdau’s cash and cash equivalents were R$3,263 million ($1,032.6 million), down 24.2% from R$4,305.4 million ($1,304.7 million) recorded in the preceding quarter. Long-term debt was R$14,130.4 million ($4,471.6 million), down 9.7% sequentially. The company’s net debt to EBITDA ratio fell to 3.4 from 3.6 in the previous quarter.
In the quarter, the company used net cash of R$230.9 million ($73.1 million) for its operating activities versus R$364.1 million ($112 million) generated in the year-ago quarter. Capital spent on purchase of property, plant and equipment decreased 40.5% to R$170.2 million ($53.9 million). Dividend payments in the quarter were R$33.7 million ($10.7 million).
Also, the company announced the approval of R$51.3 million or R$0.03 per share to be paid as dividend to its shareholders on record as of Nov 21. The dividend will be paid on Dec 1.
Gerdau S.A. Price and Consensus
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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