Companhia Siderurgica Nacional (SID) or CSN’s financial results for the fourth quarter 2010 were disappointing as its net income plunged 39% year over year as well as sequentially to R$450 million (US$266.3 million) or R$0.30 per share (18 cents per ADR). Earnings results also lagged behind the Zacks Consensus Estimate of 30 cents per ADR.
The fall in the net earnings was primarily due to an 11% increase in cost of sales and rise in net financial expenses that more than offset higher revenues in the quarter.
In the fiscal year 2010, net income plummeted 4% to R$2,516 million (US$1,437.7 million) or R$1.70 per share (97 cents per ADR) and below the Zacks Consensus Estimate of $1.24 per ADR.
Revenue
Considering the top line, net revenues of R$3,444 million (US$2,037.9 million) in the fourth quarter increased 13% year over year but declined 13% sequentially. The year-over- year growth was due primarily to a 2.3% increase in net revenue per unit, offset partially by a 13% decline in sales volume sold.
Crude steel production increased 4% year over year and 5% sequentially to approximately 1.23 million tons. Steel sales volume plummeted 12% sequentially to 1.0 million tons, of which domestic sales accounted for 82.0%, overseas subsidiaries 12% and exports, around 6%.
Volume sold for slabs fell drastically by 95%, while volume for cold-rolled sheets was down 23%; for galvanized, it was down by 5%. Hot rolled steel sales volume plummeted 17% and tin plate declined a modest 1%.
In the fiscal year 2010, net revenues were R$14,451 million (US$8,257.7 million), reflecting an increase of 32% year over year. Of the total revenue (net revenue before elimination of R$364 million), Steel segment accounted for 67%, Mining 24.4%, Logistics 6.5%, Cement 1.4%, and Energy 0.7%.
During the fourth quarter, cost of goods sold went up 11.0% year over year to R$1,928.6 million (US$1,141.2 million). Gross margin, however, escalated 100 basis points to 44% on the back of strong revenue growth.
As a percentage of net revenue, selling expenses declined by 200 basis points year over year, while general and administrative expenses increased 10 basis points year over year.
In the reported quarter, adjusted EBITDA totaled R$1,442 million (US$853.3 million) with a margin of 42% compared with 40% in the year-ago quarter. Net financial results grew 82% year over year to an expense of R$537.7 million (US$318.2 million).
Balance Sheet
Exiting the fourth quarter, Companhia Siderurgica had cash and cash equivalents of roughly R$10,239.3 (US$6,243.5 million) down from R$11,483.8 million (US$6,715.7 million) in the previous quarter. Loans, financing and debentures, net of current portion increased 4.2% to R$18,780.8 million (US$11,451.7 million) versus R$18,018.1 million (US$10,537.0 million) in the previous quarter.
Net cash flow from operating activities in the fiscal year improved significantly to R$2,482.5 million (US$1,418.6 million) versus an outflow of R$773.0 million in 2009. Capital spending totaled R$3,661.2 million (US$2,092.1 million) in 2010, reflecting an increase of 82.8% year over year.
Companhia Siderurgicaproduces hot- and cold-rolled flat steel, galvanized sheets, and tin plates for the packaging, automotive, and construction industries. We currently maintain an Underperform recommendation.
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