Companhia Siderurgica Nacional (SID), or CSN, is slated to release its third quarter 2010 results on Thursday, October 28. The current Zacks Consensus Estimate for the third quarter earnings per share (EPS) is 36 cents, representing an annualized decline of 59.09%.
Companhia Siderurgica’s results were in line with the Zacks Consensus Estimate in the trailing four quarters.
Second Quarter Highlights
Companhia Siderurgica’s second quarter 2010 net income surged 167% year over year and 85% sequentially to R$894 million (US$496.7 million), or R$0.59 per share (US$0.33 per ADR). Earnings per ADR were in line with the Zacks Consensus Estimate of $0.33 per ADR.
The sequential rise was attributable to higher volumes combined with higher prices for iron ore and steel products and lower interest expense, which more than offset increases in income tax and social contribution expenses in the quarter.
Considering the top line, net revenues of R$3,872.6 million (US$2,151.4 million below the Zacks Consensus Estimate of US$2,184 million) increased 55% year over year from R$2,491.7 million (US$1,192.2 million) in the year-ago quarter. The growth was due to higher prices and volumes sold.
Detailed discussion on second quarter results can be found here: CSN’s Profit Soars, Equals Estimate
Agreement of Estimate Revisions
In the last 30 days, there was just one positive revision in earnings estimate for 2010 and 2011. There was no revision for the third quarter of 2010.
Magnitude of Estimate Revisions
Despite a positive revision, earnings estimate for 2010 remained stable at $1.27, representing a year-over- year decline of 32.54%. Estimate for 2011, however, grew one cent to $1.91 in the last 30 days. This represented a year-over-year growth of 50.28%.
For the third quarter, earnings estimate increased from 34 cents to 36 cents and represented a year-over-year decline of 59.09%.
Our Take
We find the long-term growth outlook of Companhia Siderurgica, one of the leading Brazilian steel makers, to be very promising because of its several ongoing projects. Among these, CSN expects its $2.6 billion Transnordestina railway and logistics project to be fully operational by the end of 2012, enabling the company to transport over 30 million tonnes of cargo annually in the northeastern part of Brazil.
In the fiscal year 2010, CSN anticipates capital expenditures to amount to $2,305 million versus $930 million in 2009. Of the total spending, $502 million is allocated for the Casa de Pedra mine expansion, $352 million for Itaguaí Port expansion and $178 million in running capex. CSN also allocated $808 million for the Transnordestina S.A project.
The company’s growing businesses and increasing self-sufficiency in raw materials and transport are encouraging. With the world economy reviving, according to the World Steel Association, global steel demand in 2010 is likely to increase by 13.1% and 5.3% in 2011.
We believe results in the quarters ahead for CSN will be affected by growing competition in the market and higher manufacturing costs. Also, rising steel imports in the country may prove detrimental to the future prospects of Brazilian steel makers.
Further, the future of the world steel market depends substantially on the Chinese market, as the country’s requirement alone accounts for approximately 45% of the global demand. However, the ongoing restructuring (restriction on power consumption and shut down of old plants) in the Chinese steel industry has raised hopes for other steel makers around the globe.
We currently maintain an Underperform recommendation on the company.
CIA SIDERUR-ADR (SID): Free Stock Analysis Report
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