Back to top

Analyst Blog

Zacks Equity Research

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

PKX MT GGB MRC

Trades from $3

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.

Margins

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.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>


In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

POSCO-ADR (PKX) - free report >>

ARCELOR MITTAL (MT) - free report >>

GERDAU SA ADR (GGB) - free report >>

MRC GLOBAL INC (MRC) - free report >>