Gerdau net income plummeted 59.2% year over year. Earnings per ADR
came in at $0.07. The disappointing results were due to weak steel
demand in Brazil as well as higher costs of sales, interest expense
and foreign currency losses. Revenues grew a meager 2% driven
primarily by healthy North America performance. Crude steel
production edged down 0.8% while shipments fell 4.5%. Gross margin
declined 270 basis points (bps) due to higher costs of sales.
However, planned investments to improve manufacturing techniques,
production capacities and raw material resources will prove
beneficial for Gerdau, going forward. Also, the company's
geographically diversified business is an added boon. Considering
the above factors, we maintain a Neutral recommendation on the
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.
Gerdau S.A. (GGB): Read the Full Research
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