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UPDATE 1-Brazil's Gerdau sees income drop by nearly a third as sales sink
August 12, 2015 / 6:49 PM / 2 years ago

UPDATE 1-Brazil's Gerdau sees income drop by nearly a third as sales sink

(Adds background on global steel and comment from executives on possible asset sales and exports, paragraphs 1, 6-8)

SAO PAULO, Aug 12 (Reuters) - Brazilian steelmaker Gerdau SA posted a sharp drop in second quarter net profit on Wednesday as sales fell in both its domestic and North American divisions and said it is eyeing possible future asset sales.

Gerdau, the largest long-steel producer in the Americas, reported net income fell 32.6 percent to 265 million reais ($76.37 million) in the second quarter, compared to profit of 393 million reais in the same quarter last year.

Sales volumes in the Brazilian market fell 20.5 percent due to a slowdown in industrial activity and construction, the company said in a securities filing.

The Brazilian economy is expected to shrink about 2 percent this year and to post zero growth in 2016 as higher interest rates, lower commodities prices and broad government austerity measures drag down consumer confidence and weigh on domestic consumption.

Sales in Gerdau’s North American division dropped 6.4 percent from a year earlier. The company said the comparative decline was due to a more competitive field for imports and an exceptionally strong second quarter a year ago.

While growth in steel demand in emerging markets, especially China, is expected to remain weak in 2015, exports of steel from the world’s largest producer, China, are flooding global markets.

Chief Executive Andre Gerdau Johannpeter told analysts on a conference call later on Wednesday that the company was re-evaluating the profitability of its joint ventures and minority stakes in other endeavors with an eye on possible future asset sales.

The company’s chief financial officer, Harley Scardoelli, said on the same call that although the weakened real against the dollar would modestly help company sales abroad, he expected exports to fall slightly in the third quarter from the second.

Consolidated net revenue rose 3 percent year-on-year, to 10.76 billion reais.

Last month the company announced plans to spend 1.986 billion reais buying out four units as part of a broad reorganization program.

Gerdau’s earnings before interest, taxes, depreciation and amortization, a measure of operational efficiency known as EBITDA, rose 1.2 percent to 1.184 billion reais.

$1 = 3.47 reais Reporting by Asher Levine and Reese Ewing; Editing by Franklin Paul and Frances Kerry

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