Companhia Siderurgica (SID) Posts Q3 Earnings On Solid Sales

Brazilian steel maker Companhia Siderurgica Nacional (NYSE:SID) or CSN reported unaudited results for third-quarter 2017, with net earnings of R$256.2 million ($81.1 million) versus net loss of R$66.8 million ($20.6 million) recorded in the year-ago quarter.

Earnings per share in the quarter was R$0.18 or 6 cents per American Depository Receipt.

Revenues Improved

CSN’s net revenues in the quarter were R$4,809.7 million ($ million), increasing 7.6% year over year and 12% sequentially. The year-over-year improvement was driven by healthy performance in Steel, Logistics, Cement and Energy segments, partially offset by weakness in the Mining results.

Of the revenues, roughly 49.5% were generated from domestic markets while the rest were sourced from international operations.

Slab production grew 25% year over year to roughly 1.1 million tons while production of rolled steel increased 8% to 0.9 million tons. Production of long products declined 44% to 50 thousand tons.

Steel sales volume grew 9% year over year to 1.3 million tons, of which domestic sales accounted for 62%, overseas subsidiaries for about 33% and exports for roughly 5%. Iron ore sales were down 22% year over year to 8 million tons.

Steel segment’s revenues, comprising 64.5% of net revenues, grew 18.6% year over year. Revenues from the Mining segment decreased 7.9%, accounting for 22.8% of net revenues.

Logistics segment contributed 8% to net revenues, growing 4.4% year over year. Cement segment’s revenues increased 1.4% and represented 2.7% of net revenues. Revenues from the Energy segment grew 51.5% year over year, accounting for 1.4% of net revenues.

Higher Costs Adversely Impacted Margins

In the quarter, CSN’s margins were adversely impacted by 13.9% year-over-year increase in cost of sales. This cost represented 75% of net revenues versus 71% in the year-ago quarter. Gross margin decreased 400 basis points (bps) to 25%.

As a percentage of net revenues, selling expenses decreased 40 bps year over year while general and administrative expenses decreased 110 bps over the same time frame.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 2% year over year to R$1,213 million ($383.9 million), with a margin of 25.2% compared with 27.7% in the year-ago quarter. Net financial results were an expense of R$277.8 million ($87.9 million).

Balance Sheet & Cash Flow

Exiting the third quarter, CSN’s cash and cash equivalents were R$4,138.8 million ($1,309.7 million), down from R$4,328.5 million ($1,307.7 million) at the end of the previous quarter. Borrowings and financing (net of current portion) decreased 7.5% sequentially to R$25,020.1 million ($7,917.8 million). Net debt to adjusted EBITDA ratio in the quarter was 5.48.

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In the quarter, the company generated net cash of R$585.4 million ($185.3 million) from its operating activities versus roughly R$386.7 million ($120.1 million) used in the previous quarter. Capital spend on fixed assets/intangible increased 20.6% sequentially to R$288.5 million ($91.3 million).

National Steel Company Price and Consensus