Gerdau S.A. (GGB): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
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 company.

Overview:

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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