Embattled Steelmaker Vindicated on CEO Shakeup as Shares Surge

  • Shares have more than doubled since Leite named chief in May
  • CEO said he expects higher sales in second half of 2016

The appointment of Sergio Leite to lead Usiminas had its critics, but it’s hard to argue against the move based on the Brazilian steelmaker’s recent share performance.  

Since late May, when Leite was tapped as chief executive officer, the stock has surged 113 percent, double the next-best gain in a gauge of 42 producers tracked by Bloomberg Intelligence. Usinas Siderurgicas de Minas Gerais SA, as the company is formally known, was buckling under a heavy debt load and two straight annual losses for the stock.

The new CEO was elected just as the company was raising prices and concluding a 1 billion-real capital increase attached to a debt restructuring. Analysts considered those steps necessary to help embattled Usiminas avoid bankruptcy. With the debt renegotiation settled, Leite has turned his attention toward the balance sheet, and said he’s confident the new pricing and cost-reduction efforts will be bolstered by an improved sales outlook.

"We are aiming for higher volumes at better prices," Leite said by telephone from Belo Horizonte, where the company is based. “I can say that we will have in the second half of this year higher sales numbers than we did in the first half.”

Shares fell 4.6 percent to 3.71 reais at 12:11 p.m. in Sao Paulo trading. The BI steelmakers index slid 1.8 percent.

Management Fight

Usiminas’s joint controlling shareholders Techint-Ternium group and Nippon Steel & Sumitomo Metal Corp., which agreed to run Usiminas jointly in 2012, have been engaged in a long-standing fight over how to manage the company. 

The two sides argued over the appointment of Leite and how to deal with mounting losses and evaporating cash reserves amid a global steel glut exacerbated by Brazil’s deepest recession in a century. In 2014 Techint’s CEO choice Julian Eguren was fired, making way for Romel Erwin de Souza, who was then replaced by Leite. Nippon Steel took legal action and has tried to have Leite removed from office.

It may be too soon to compare Leite’s tenure with that of other Usiminas CEOs. Luiz Francisco Caetano, an analyst at Planner Corretora, said that while the market has an “excellent impression” of Leite, the company’s shares started to rebound before he took office.

Usiminas also made the key decision to raise some of its prices days before Leite took office.

Cost Focus

Even with the improved outlook for the company, an economic turnaround in Brazil has yet to take hold. That means the company still has to focus on lowering costs and streamlining operations amid depressed auto sales and industrial activity.

Leite said that although the company has to comply with existing supply contracts, he is “negotiating what cost gains can be obtained within the framework of the contracts.” As contracts end, Leite said Usiminas will open the bidding to other suppliers while it also eyes better terms with the local automaker customers, Leite said.

In the meantime, he said the company is implementing what operational reforms it can, such as the tweaking of raw materials purchasing strategy and reducing management costs.

Leite said that the partial price increases the company instituted in May will begin to show dividends this quarter.

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