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Gerdau (GGB) Q3 Earnings Fall Y/Y, Segmental Results Weak

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Brazilian steel producer Gerdau S.A. (GGB - Free Report) reported disappointing results for third-quarter 2016. The company’s adjusted net income was down roughly 50.8% year over year to R$95.2 million ($29.4 million).

Gerdau’s net sales in the quarter totaled R$8,698.7 million ($2,684.8 million), down 27.1% year over year. Crude steel production in the quarter declined 7.3% year over year to 3.894 million tons, while shipments declined 21.4% to 3,668 million tons.

Segmental Details

A brief discussion on Gerdau’s segmental results is provided below.

Revenues sourced from the Brazil BD (business division) accounted for 28.1% of net sales, down 20.2% year over year, while that from North America BD represented roughly 40.4% of net sales, down 28.2% year over year. The South America BD revenues constituted 12.4% of net sales, down 21.9% year over year. Revenues from Special Steel BD decreased 36.8%, comprising 19% of net sales.


In the quarter, Gerdau’s margins improved year over year, as 27.1% fall in net sales was more than offset by 28.6% decline in cost of sales. As a percentage of net sales, costs of sales was 88% versus 89.8% in the year-ago quarter. Gross margin was up 180 basis points (bps) to 12%.

Selling expenses, as a percentage of revenues, were 1.6%, while general and administrative expenses were 4%. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were R$1200 million ($370.4 million), down 7% year over year. EBITDA margin came in at 13.8% compared with 10.8% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the third quarter, Gerdau had cash and cash equivalents of R$3,948.6 million ($1,215 million), up 3.7% from R$3,809.4 million ($1,179.4 million) in the preceding quarter. Long-term debt was R$18,703.3 million ($5,754.9 million), above R$18,496.9 million ($5,726.6 million) at the end of the previous quarter.

In the first nine months of 2016, Gerdau generated net cash of R$1,836.945 million from its operating activities, down 64.7% year over year. Capital spent on purchase property, plant and equipment totaled R$1,097.4 million, down 38% year over year.

Impressed with its third-quarter results, Gerdau announced pre-payment of part of its minimum mandatory dividend. Dividends of approximately R$34.2 million or R$0.02 per share will be paid on Dec 1 to shareholders of record as on Nov 21.  

Outlook: For 2016, Gerdau expects capital expenditure to be R$1.5 billion, down 35% year over year while it plans to spend R$1.4 billion on productivity and maintenance enhancement in 2017.

GERDAU SA ADR Price, Consensus and EPS Surprise


GERDAU SA ADR Price, Consensus and EPS Surprise | GERDAU SA ADR Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $6.4 billion Gerdau currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include POSCO (PKX - Free Report) , MRC Global Inc. (MRC - Free Report) and ArcelorMittal (MT - Free Report) . While both POSCO and MRC Global sport a Zacks Rank #1 (Strong Buy), ArcelorMittal carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

POSCO’s earnings estimates for 2016 and 2017 have been revised upward over the last 30 days.

MRC Global Inc. has a positive average earnings surprise of 83.27% of the last four quarters while its bottom-line expectations for 2016 and 2017 have improved over the last 30 days.
ArcelorMittal earnings estimates for 2016 and 2017 have improved over the past 30 days.

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