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Gerdau Profit Beats Estimates on Higher Sales in Brazil

Aug. 1 (Bloomberg) -- Gerdau SA, Latin America’s largest steelmaker, said second-quarter profit declined 27 percent, beating analysts’ estimates, after boosting shipments in Brazil. Shares rallied.

Net income dropped to 390.4 million reais ($171.5 million) from 535.8 million reais a year earlier, the Porto Alegre, Brazil-based company said today in a statement. Gerdau was expected to post profit of 244 million reais excluding some items, according to the average of seven estimates compiled by Bloomberg.

Brazil’s steelmakers are raising prices and cutting costs to strengthen profit margins amid a weaker local currency that reduces imports’ competition. Usinas Siderurgicas de Minas Gerais SA, the second-largest Brazilian steelmaker by output, last week posted its best adjusted profit in two years.

“The main highlight of the results is the margin improvement in the Brazilian operations,” Catarina Pedrosa, an analyst at BES Securities, said in a note to clients today. The company posted “a better mix with an increase in domestic sales and reduction in exports.”

Gerdau is not interested in the Sudeste port that Eike Batista’s MMX Mineracao & Metalicos SA is considering selling, CEO Andre Gerdau Johannpeter said in a conference call with reporters today. The company expects to export 700,000 metric tons of iron ore from its mining unit this year in five shipments, he said.

Sales Drop

Gerdau’s net sales slid 0.9 percent in the quarter from the same period last year to 9.88 billion reais while the cost of goods were little changed in the period, the company said. Sales within Brazil, its biggest unit, rose 7.9 percent and revenue from the country’s exports slumped 39 percent as Gerdau focuses on the most profitable domestic market.

In Brazil, “the net sales growth is explained by the higher shipments to the domestic market,” Gerdau said in the filing, which was released before the opening of regular market trading. “Selling costs were stable despite the reduction in shipments, which was fully offset by the effect of exchange variation.”

Crude-steel output declined 7.9 percent to 4.65 million metric tons in the quarter, while total shipments dropped 3 percent, the company said.

Gerdau advanced 4.3 percent to 15.22 reais at the close in Sao Paulo.

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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