Gerdau Drops After Second-Quarter Profit Misses Forecasts

Gerdau SA, Latin America’s largest steelmaker, declined the most in almost two weeks after reporting that second-quarter profit missed analysts’ estimates.

Gerdau fell 2.6 percent to 13.37 reais at the close in Sao Paulo, the biggest drop since July 17. The stock was the second-worst performer among 42 companies on the BI Global Steel Producers index.

Net income dropped to 356.5 million reais ($163 million), from 390.4 million reais a year earlier, the Porto Alegre, Brazil-based company said today in a statement. Income fell as a drop in Brazil sales was not fully offset by an increase at its North American unit. Gerdau was expected to post profit excluding one-time items of 454.6 million reais, the average of five estimates compiled by Bloomberg.

“Lack of seasonal strength coupled with weak construction activity during the World Cup put pressure on earnings,” Andreas Bokkenheuser, an equity analyst at UBS AG, said today in a note to clients. “The negative effect from the World Cup is likely to have carried into the third quarter as well, putting pressure on Gerdau’s Brazilian business”.

The month-long soccer tournament, which started June 12, led to declines of steel shipments in the Brazil unit, which represent about a third of the company’s revenue. Total net sales in the quarter rose a less-than-expected 5.7 percent to 10.4 billion reais, helped by a 16 percent increase in net sales from Gerdau’s North American unit.

Total steel shipments fell 2.4 percent to 4.52 million metric tons.

The company cut its investment plan for this year by 17 percent to 2.4 billion reais as it faces slower-than-expected steel demand, Chief Executive Officer Andre Gerdau Johannpeter told reporters during a conference call today.

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