CSN Posts First Loss in 10 Years After Usiminas Writedown

Cia. Siderurgica Nacional SA (CSNA3), Brazil’s third-largest steelmaker, fell to the lowest in almost two weeks after unexpectedly posting its first quarterly loss in 10 years on the declining value of its stake in rival Usinas Siderurgicas de Minas Gerais SA. (USIM5)

CSN, as the Sao Paulo-based company is known, slid 1 percent to close at 10.35 reais in Sao Paulo today, the lowest since Aug. 2. The stock has dropped 31 percent since the beginning of the year, compared with a 2.5 percent gain in Brazil’s Bovespa Index.

CSN posted yesterday a second-quarter net loss of 1.03 billion reais ($509.3 million), compared with net income of 1.14 billion reais a year earlier. It was expected to post profit excluding some items of 50.1 million reais, according to the average of eight analysts’ estimates compiled by Bloomberg.

CSN had been buying shares in Usiminas since at least January 2011 to seek to alter the competitor’s management or control structure. The efforts were thwarted last year when the Techint Group agreed to pay 5.03 billion reais for a 27.7 percent voting stake in Usiminas, joining Nippon Steel Corp. (5401) in the company’s controlling group.

CSN booked a 1.6 billion-real net tax loss for its equity investment in Usiminas after the Belo Horizonte, Brazil-based company’s share price slumped, the company said yesterday. CSN held 20.14 percent of Usiminas preferred stock and 11.97 percent of its common shares as of Dec. 31, CSN said.

‘Disturbing Strategy’

“The booking of a significant loss highlights what we consider to be CSN’s disturbing strategy of utilizing its cash,” Banco Santander SA (SAN) analysts Felipe Reis and Alex Sciacio in Sao Paulo said in a note to clients today. “We continue to recommend that investors avoid the stock due to our projection of poor operating performance in the coming quarters.”

Usiminas’s preferred shares fell to the lowest in more than eight years last month amid higher production costs. The company’s voting shares slid 67 percent in the past 12 months through yesterday, the worst performer in Brazil’s benchmark Bovespa Index. (IBOV)

CSN continues analyzing “all alternatives” for its Usiminas stake, Investor Relations Executive Officer David Salama said today, echoing similar comments since last year. The company will continue making accounting adjustments according to the value of the stake at the end of each quarter, he said during an earnings conference call.

The second-quarter loss was CSN’s first since the third quarter of 2002, according to data compiled by Bloomberg. Gerdau SA (GGBR4) and Usiminas, the two largest Brazilian steelmakers, beat second-quarter analysts’ estimates amid rising sales.

Declining Sales

CSN’s net revenue fell 4.2 percent in the quarter to 4.14 billion reais, less than the 4.3 percent increase in the cost of goods sold. Iron-ore sales volumes declined 9.5 percent to 6.1 million metric tons, while steel sales increased 8.5 percent to 1.41 million tons, CSN said.

Net debt as of June 30 rose to 15.6 billion reais from 14.3 billion reais at the end of the previous quarter.

CSN is facing lower prices and volumes in its iron-ore division, increasing competition in the domestic steel market and boosting project development costs, Credit Suisse Group AG analysts including Ivano Westin said in a Aug. 9 note after cutting the stock to the equivalent of sell from the equivalent of hold.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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