Recently, Gerdau S.A. (GGB) posted results for the fourth quarter and 2009. Gerdau recorded a net income of R$643.5 million (US$367.7 million) in the quarter compared to R$655.1 million (US$348.5 million) in the previous quarter. EPS was R$0.45 or 26 cents compared to R$0.46 or 24 cents in the previous quarter. Reported EPADR surpassed the Zacks Consensus Estimate of 20 cents.
During 2009, net income was R$1,004.5 million (US$499.8 million), down from R$4,945.0 million (US$2,687.5 million) in the previous year. EPS was R$0.70 or 35 cents compared to R$3.46 or US$1.88 in 2008.
During the quarter, net revenues dropped to R$6,362.8 million ($3,384.5 million) from R$6,807.9 million (US$2,972.9 million) in the previous quarter, representing a decline of 6.5% sequentially. Total rolled production decreased 4.3% sequentially reaching 3.18 million tons and total crude steel production decreased 4.7% reaching 3.84 million tons.
During the full year, net revenues fell to R$26,540.0 million (US$13,204.0 million) from R$41,907.8 million (US$22,776.0 million) in 2008. Total rolled production decreased 28.6% year over year reaching 11.74 million tons and total crude steel production decreased 31.1% reaching 13.51 million tons.
During 2009, the Brazilian business accounted for 38.9% of total revenue, North American business accounted for approximately 31.3% of the total revenue, other Latin American countries represented 11.8%, and the Spanish business represented the balance.
During the quarter, the company reported a 9.4% sequential decrease in EBITDA reaching R$1,246.0 million ($662.8 million), representing an EBITDA margin of 19.6% from 20.2% in the previous quarter.
During 2009, the company reported a 61.9% yearly decrease in EBITDA reaching R$3,815.0 million ($1,898.0 million), representing an EBITDA margin of 14.4% from 23.9% in the previous year.
This decrease in EBITDA was due to the 30.0% increase in operating expense in the year. Net debt dropped to R$9.7 billion ($5.5 billion) from R$17.7 billion at the end of 2008. Currently, net debt represents 2.5x EBITDA of the last twelve months. During 2009, the company saw a reduction in net debt as a result of repayments and foreign exchange variation during the period.
During 2009, the company generated R$7,713.8 million ($3,837.7 million) as cash flow from operating activities versus R$6,501.7 million (US$3,533.5 million) in the previous year.
The international economic slowdown and the decline in steel prices have created a challenging business environment for steel. Crude steel production dropped around 6.7% in 2008 over the previous year and consumption witnessed a steep decline of 10.6%.
The downtrend continued in 2009, but the recovery is expected in late 2010. The government support and the recovering industrial sector is expected to infuse steel demand. Thus, we reiterate our Neutral recommendation on Gerdau ADR.
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