Gerdau's net income declined 1.9% year over year in second-quarter
2014, with earnings coming in at $0.10 per ADR. Revenues grew 5.7%
due to healthy performance in North America, Special Steel and Iron
Ore business operations. However, weak domestic demand for steel
and lower exports affected the company's Brazilian operations while
business in Latin America suffered from slower economic growth.
Steel shipments were down 2.4% while production grew a meagre 0.5%.
Gross margin was down 150 basis points. However, planned
investments to improve manufacturing techniques, production
capacities and raw material resources will help Gerdau to
capitalize on the growing steel demand worldwide. Considering the
above factors, we maintain a Neutral recommendation on the company.
Gerdau S.A. (GGB) is a leading steel producer in Brazil with
operations spanning over South America, North America, Europe and
Asia. The company is the second-largest long steel producer in the
world and the largest in the Americas. Exiting 2013, the company
had a total installed production capacity of over 25 million tons
of steel per year, while crude steel (slabs, blooms and billets)
production reached 18.0 million tons. Also, the company has
ventured into flat steel production business, along with expanding
its iron ore activities.
Gerdau produces steel, mostly through mini-mills and distributes
steel products through its own network of 88 commercial branches in
Brazil. The company operates 61 steel-producing units worldwide,
including joint ventures and associated companies.
In the North American market, the company operates through its
wholly owned subsidiary, Gerdau Ameristeel. Its North American
facilities, 18 steel producing units, are based across both the
U.S. and Canada. Additionally, Gerdau has four integrated mills in
Brazil with plants located and sized to scale in order to meet the
needs of local markets and access customers efficiently.
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