Gerdau’s Results Buoyant – Analyst Blog

Gerdau S.A.’s (GGB) first quarter net income shot up to R$573 million (US$320.9 million) from just R$35 million (US$15.1 million) in the first quarter of 2009. The growth was driven by a decrease in costs and operating expenses as a percentage of revenues. Earnings per share (EPS) was R$0.35 or 20 cents compared to R$0.06 or 3 cents in the year-ago quarter. Reported EPADR surpassed the Zacks Consensus Estimate of 14 cents.

 

During the quarter, net revenues reached R$7,107.6 million ($3,980.3 million) from R$6,967.8 million (US$2,996.2 million) in the corresponding period of 2009, representing an increase of 2.9%. Total rolled production soared 47% year over year to reach 3.6 million tons. Total crude steel production more than doubled from the first quarter of 2009 to reach 4.4 million tons.

 

In the first quarter of 2010, the Brazilian business accounted for 37.7% of total revenues, North American business accounted for approximately 33.2% of the total revenues, other Latin American countries represented 13.5%, and the Spanish business represented the balance.

 

Gross margin grew 900 basis points while selling, general and administrative expenses dropped 200 basis points. Based on higher revenues and lower expenses, EBITDA reached R$1,401 million ($784.6 million) from R$599 million (US$257.6 million) in the first quarter of 2009. EBITDA margin more than doubled to 19.7% from 8.6% in the same quarter of previous year.

 

As on March 31, 2010, net debt was R$10.1 billion ($5.7 billion) from R$9.7 billion (US$4.2 billion) at the end of 2009. Currently, net debt represents 2.2x EBITDA generated in the last twelve months.

 

The company generated R$1,397.7 million ($782.7 million) as cash flow from operating activities versus R$586.7 million (US$252.3 million) in the same period of 2009.

 

We are optimistic on the gradual recovery in the world steel market. However, we reiterate our Neutral recommendation based on uncertain economic conditions.