Gerdau (GGB) Records Loss In Q1, Steel Production Falls Y/Y
Zacks Investment Research | May 05, 2017 08:55AM ET
Brazilian steel producer Gerdau S.A. (NYSE:GGB) reported weak results for first-quarter 2017, with the bottom line plunging to a loss of R$34.1 million ($10.9 million) from earnings of R$14.2 million ($3.6 million) in the year-ago quarter.
The company’s net sales were R$8,458.7 million ($2,693.5 million), down 16.1% year over year. The decline was triggered by forex headwinds and special steel units divestment in Spain.
Crude steel production declined 3.3% year over year to 4.018 million tons while shipments of steel fell 6.8% to 3,591 million tons. Production decline was primarily due to divestment of Spain-based special steel units.
Segmental Revenues
A brief discussion on Gerdau’s segmental results is provided below.
Revenues sourced from the Brazil BD (business division) accounted for 31.6% of net sales, up 3.3% year over year while that from North America BD represented roughly 39.8% of net sales, down 15.7% year over year. The South America BD revenues constituted 12.2% of net sales, down 18.9% year over year. Revenues from Special Steel BD decreased 37.5%, comprising 16.4% of net sales.
Margins
In the quarter, Gerdau’s margins suffered due to fall in net sales, partially gaining from year-over-year decrease of 15.8% in cost of sales. As a percentage of net sales, cost of sales was 92.3% versus 91.9% in the year-ago quarter. Gross margin was down 40 basis points (bps) to 7.7%.
Selling expenses, as a percentage of revenues were 1.6% while general and administrative expenses were 3.6%. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were R$853 million ($271.7 million), down 8.3% year over year. EBITDA margin came in at 10.1% compared with 9.2% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the first quarter, Gerdau’s cash and cash equivalents decreased 11.6% sequentially to R$4,476.1 million ($1,430.1 million) from R$5,063.4 million ($1,558 million) recorded in the preceding quarter. Long-term debt was R$15,373.1 million ($4,911.5 million), below R$15,959.6 million ($4,910.6 million) at the end of the previous quarter.
In the quarter, the company generated net cash of R$36.4 million ($11.6 million) from its operating activities, down 96.1% year over year. Capital spent on purchase of property, plant and equipment totaled R$236.6 million ($75.4 million), down 51.2% year over year. Dividend payments in the quarter totaled R$2 million ($0.64 million)
Outlook
For 2017, Gerdau expects capital expenditure to be R$1.3 billion on productivity and maintenance enhancement.
Gerdau S.A. Price and Consensus
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