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Gerdau Q4 Earnings Fall Y/Y, Revenues Hurt by Higher Costs - Analyst Blog

Gerdau S.A.GGB reported disappointing fourth-quarter 2014 results. Net income came in at R$393 million (US$154.7 million), down 20.1% year over year. The year-over-year decline was the result of weak revenue growth, partially offset by higher costs of sales and operating expenses.

For 2014, the company's net income was R$1,488.4 million (US$633.4 million), down 12.1% year over year.

Revenues

Gerdau generated net sales of R$10,843 million (US$4,268.9 million) in the quarter, reflecting an increase of 5.1% from the year-ago tally.

The company operates its businesses under the following heads:

Revenues sourced from the Brazil BO (business operation) accounted for 32.8% of net revenue in the quarter, declining 3% year over year; while that from the North America BO represented roughly 32.2% of net revenue, rising 13.3%. The Latin America BO contributed 13% of net revenue, up 5.3% year over year.

Revenues from Special Steel BO climbed 2.9% and accounted for 19.8% of net revenue. The newly added Iron Ore BO recorded a revenue decline of 45.2%, representing 2.2% of net revenue.

Crude steel production in the quarter declined 2.8% year over year to 4,323 million tons, while shipments fell 3.4% to 4,399 million tons.

For 2014, Gerdau's net sales totaled R$42,546 million (US$18,104.7 million), up 6.7% year over year.

Margins

Gerdau's cost of sales rose 6.6% year over year and as a percentage of net revenue, came in at 88.2% versus 86.9% in the year-ago quarter. The top-line improvement was more than offset by an increase in costs, contracting the gross margin by 130 basis points (bps) to 11.8%.

Selling expenses, as a percentage of revenues, inched down 10 bps to 1.5%; while general and administrative expenses stood at 4.8%, down 10 bps year over year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,238 million (US$487.4 million) in the quarter, down 9.6% year over year. Operating margin was 8.7% versus 7.8% in the year-ago quarter.

Balance Sheet

Exiting fourth-quarter 2014, Gerdau had cash and cash equivalents of R$3,050 million (US$1,138.1 million) versus R$2,872.1 million (US$1,181.9 million) in the preceding quarter. Long-term debt increased to R$17,148.6 million (US$6,398.7 million) from R$16,130.5 million (US$6,638.1 million) in third-quarter 2014.

Cash Flow

In 2014, Gerdau generated cash of R$2,570.9 million (US$1,094 million) from its operating activities, down 37.3% year over year. Capital spending totaled R$2,266.7 million (US$964.6 million), declining 12.8% year over year.

During the period, Gerdau's dividends and interest on capital payment amounted to R$455.1 million (US$193.7 million).

Gerdau, with a market capitalization of $6.1 billion, currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the industry include ThyssenKrupp AG TYEKF , Kobe Steel Ltd. KBSTY and Ossen Innovation Co., Ltd. OSN . While ThyssenKrupp sports a Zacks Rank #1 (Strong Buy), both Kobe Steel and Ossen Innovation hold a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


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

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