--Gerdau reports sales rose in Brazil, fell in North America
--Gerdau says profit was boosted by advance debt payments
--Gerdau says Ebitda was hit by continuing high raw-materials
costs
(Updates with Brazil market in seventh paragraph, new project
investments from ninth paragraph on.)
By Diana Kinch and Rogerio Jelmayer
SAO PAULO--Steelmaker Gerdau SA (GGB, GGBR3.BR, GGBR4.BR) posted
a 9% increase in its second-quarter profit, above market
expectations, as a rise in steel prices offset a drop in sales
volume and the company benefited from deferred taxes.
Gerdau reported a second-quarter profit of 549 million Brazilian
reais ($269 million), up from BRL503 million in the year-earlier
period. Net revenue reached BRL9.98 billion, compared with BRL9
billion in the year-earlier period.
Gerdau attributed the recovery mainly to higher demand for
long-steel products in the Brazilian domestic market, where its
revenue climbed 11% from a year earlier and rose 8% from
first-quarter levels on stable production and sales. However, sales
volumes in the U.S. and Canada fell 5% from the year-earlier
period, as customers had brought purchases into the first quarter
because the region's winter was less rigorous than usual, Gerdau
said.
Gerdau's net income in the quarter was boosted by a positive
financial effect from advance payment of debts, the company said.
Analysts at Credit Suisse noted Gerdau also benefited from deferred
tax payments.
Earnings before interest, taxes, depreciation and amortization,
or Ebitda, fell to BRL1.24 billion from BRL1.3 billion a year
earlier, as the company continued to battle high raw-materials
costs.
"Our operations continue severely impacted by the costs of raw
materials such as iron ore, coal and scrap," said Gerdau Chief
Executive Andre Gerdau Johannpeter. "Amid the volatile global
scenario, with the economic slowdown in emerging nations and the
European crisis, our challenge is to continue to seek improving
margins, via a continuous improvement of costs management."
Industrial production in Brazil should remain flat or even fall
this year due to the deindustrialization process occurring partly
as a result of deficient infrastructure, Mr. Gerdau said. However,
Brazil's construction sector should expand by 5.2% in 2012 as a
result of new infrastructure projects under way, including in
preparation for the country's hosting of the 2014 World Cup, which
is already boosting steel demand, he said.
In spite of the uncertainty on international markets, Gerdau is
maintaining its BRL10.3 billion investment program for 2012-2016,
but may in the future be more selective in its choice of projects
and more flexible in its timetable for disbursements, he said.
New projects in India and Mexico figure among investment
priorities, Mr. Gerdau said. The company is resuming investments at
Gerdau Corsa, a BRL1.1 billion new joint-venture mill project in
Mexico, in which Gerdau holds 50%. The mill, to start up in 2014,
will produce one million tons a year of crude steel and 700,000
tons a year of structural steels, to substitute imports of these
products into Mexico, he said.
In India, Gerdau's joint venture with the Kalyani group will
start up a 350,000-tons-a-year blast furnace this month,
accompanied by energy-generation facilities. In a later stage it
will start up a specialty-steel-products rolling mill.
In Brazil, Gerdau will move into flat-steel-products production
in late 2012, with the startup of an 800,000-tons-a-year hot-strip
rolling mill at its Acominas works. This will compete in a
currently oversupplied market with mills installed at Usinas
Siderurgicas de Minas Gerais SA (USIM5.BR, USIM3.BR, USNZY) or
Usiminas, Companhia Siderurgica Nacional (CSNA3.BR, SID), or CSN,
and ArcelorMittal Brasil.
Still, the new mill will start up at a relatively low production
rate to supply the oil and construction markets, which are
continuing to expand, Mr. Gerdau said.
Gerdau is also on schedule to bring a one-million-tons-a-year
heavy-plates mill into operation in Brazil in the first half of
2014, Mr. Gerdau said. This will also compete with suppliers
including Usiminas for orders from the shipbuilding and
infrastructure sectors.
Around BRL2.4 billion is being invested on the two new mills, he
said.
Write to Diana Kinch at diana.kinch@dowjones.com or Rogerio
Jelmayer at rogerio.jelmayer@dowjones.com
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