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Gerdau Slumps After Profit Misses Estimates

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May 7 (Bloomberg) -- Gerdau SA, Latin America’s largest steelmaker, declined the most in three weeks after reporting that first-quarter profit decreased 60 percent, missing analysts’ estimates.

Gerdau fell 2.2 percent to 15.12 reais at the close in Sao Paulo today, the most since April 15. The stock, which traded at 2.2 times its three-month average volume, was the second-worst performer on the Brazil’s benchmark Ibovespa index, which gained 1.5 percent.

Net income dropped to 148.2 million reais ($74 million), from 396.6 million reais a year earlier, after sales in North America declined, Brazil-based company said today in a statement. Gerdau was expected to post profit excluding one-time items of 154.1 million reais, the average of seven estimates compiled by Bloomberg. Its earnings missed estimates for a third consecutive quarter.

Brazilian steelmakers are posting declining profits as higher production costs, waning demand and a global steel glut reduces margins. Steel consumption in Latin America’s largest economy dropped 1.7 percent in the first quarter, the Brazil Steel Institute, an industry group, said today.

“The is an improving trend”, Chief Financial Officer Andre Pires said during an analyst conference call today. “We expect the second quarter to be better.”

A more severe winter than usual pared sales in North America, which represents about 40 percent of revenue, Gerdau said. Net sales declined 0.4 percent to 9.17 billion reais, from 9.2 billion a year earlier, pushed down by a 13 percent decline in shipment volumes from Gerdau’s North American unit.

Average steel prices in Brazil were 5 percent lower than expected in the first quarter, Bank of America Corp. analysts led by Thiago Lofiego said in research report today.

“The U.S. steel market recovery continues to lag, specially non-residential construction,” the analysts wrote. “Downside risks to consensus estimates are now clearer”.

Total steel shipments fell 4 percent to 4.56 million metric tons, Gerdau said.

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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