May 5 (Bloomberg) -- Gerdau SA, Latin America’s largest steelmaker, said first-quarter profit fell 23 percent as raw-material and production costs increased. Shares plunged to a two-year low.
Net income dropped to 390.8 million reais ($241.6 million), or 26 centavos a share, from 504.3 million reais, or 35 centavos, a year earlier, the Porto Alegre, Brazil-based company said today in a statement. Gerdau was expected to post per-share profit of 25 centavos on an adjusted basis, the median of five estimates compiled by Bloomberg.
Gerdau and other Brazilian steelmakers are trading near their lowest levels in about two years as higher raw-material costs hurt profit margins and a local-currency rally boosts competition from imports. Producers will likely under-perform miners and pulp and paper stocks in the next two to three months, said Goldman Sachs Group Inc.
“Brazilian companies should not be able to increase prices as much as we previously forecast,” Goldman analysts led by Marcelo Aguiar in Sao Paulo wrote in a May 3 report to clients. “Otherwise, imports should become a threat again.”
Gerdau fell 4.4 percent to settle at 16.95 reais in Sao Paulo trading today, its biggest drop in more than six weeks and the lowest close since May 15, 2009. In the past 12 months the stock has lost 37 percent, compared with a 2.3 percent drop for the benchmark Bovespa Index.
Gerdau’s crude-steel production rose 9 percent to 4.75 million metric tons in the quarter, the company said. Net sales rose 18 percent to 8.36 billion reais, less than the 26 percent increase in the cost of goods sold during the period.
The company aims to lower costs by producing enough iron ore, the main raw material used to make steel, to supply all of its mills next year, Chief Executive Officer Andre Gerdau Johannpeter said today on a conference call.
Gerdau, which is “paying attention” to possible mining acquisition opportunities, isn’t currently negotiating a purchase, Chief Financial Officer Osvaldo Schirmer said on the same call.
In April, Gerdau and shareholders raised about 4.98 billion reais in Latin America’s biggest stock sale in almost seven months. The offering helped fuel speculation that it may buy part of rival Usinas Siderurgicas de Minas Gerais SA, the Brazilian steelmaker known as Usiminas. Johannpeter declined to comment when asked about it today.
Gerdau expects domestic and international steel prices to remain “stable” this year, Johannpeter said. The company withdrew “some” price discounts earlier this year, he said, declining to give specific figures.
The company said in a statement today it plans to invest 718 million reais through 2013 to expand some units and install a new plant in the Brazilian state of Sao Paulo. Gerdau will also spend 560 million reais on its U.S. units by 2013.
The earnings results are based on international financial reporting standards.
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