Gerdau Profit Misses Analyst Estimates on Rains, Cost Increases

Gerdau SA, Latin America’s largest steelmaker, said first-quarter profit dropped 5.4 percent, missing analysts’ estimates, after heavy rains in Brazil hindered shipments and costs grew more than sales.

Net income fell to 369.6 million reais ($192.2 million) from 390.8 million reais in the year-earlier period, the Porto Alegre, Brazil-based company said yesterday in a statement. Gerdau was expected to post profit of 435.6 million reais, excluding some items, according to the average of nine analyst estimates compiled by Bloomberg.

Brazilian steelmakers, including Gerdau, are struggling as a global glut reduces the companies’ ability to boost prices. Usinas Siderurgicas de Minas Gerais SA, the second-largest Brazilian steelmaker by output, said April 23 its first-quarter loss more than doubled to 70.8 million reais.

Gerdau’s net sales in the quarter rose 10 percent to 9.2 billion reais, less than the 12 percent increase in the cost of goods sold during the period. Shipments were little changed in the quarter, while exports from Brazil dropped 21 percent as rains hindered production, the company said.

“The higher cost of sales on a consolidated basis mainly reflects higher costs in raw materials,” Gerdau said in the statement, which was issued after the close of regular trading in Brazil. “Greater costs were also influenced by the heavy rains during the beginning of 2012.”

Gerdau dropped 0.6 percent to 17.81 reais in Sao Paulo yesterday. The stock has increased 23 percent this year, more than the 10 percent gain for Brazil’s benchmark Bovespa Index.

‘Sizeable Improvement’

Crude-steel production rose 4 percent to 4.94 million metric tons in the quarter, the company said. Profit margins fell to 11 percent, compared with 13 percent in 2011, it said.

“We still expect Gerdau to deliver a sizeable improvement in the upcoming quarters,” Felipe Reis and Alex Sciacio, analysts at Banco Santander SA in Sao Paulo, said in a note on April 27. “We maintain our bullish call on Gerdau, as we expect it to rebound from expected weak operating results.”

Gerdau, which plans to invest 10.3 billion reais between 2012 and 2016, said yesterday that it will spend 838 million reais in expanding its Acominas unit’s iron-ore production capacity 77 percent to 11.5 million metric tons by 2014 as a way of reaching self-sufficiency in the steelmaking ingredient. The company is also spending 192 million reais increasing its Colombian steel operations, it said.

(Gerdau has scheduled a conference call with investors today at 2 p.m. New York time)

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