Gerdau Ameristeel Announces Record 1st Quarter Earnings
05/13/2008 - Gerdau Ameristeel reports net income of $163.0 million on net sales of $2.0 billion for the three months ended March 31, 2008.
Gerdau Ameristeel Corp. reported net income of $163.0 million on net sales of $2.0 billion for the three months ended March 31, 2008.
The $163.0 million ($0.38 per share fully diluted) net income reflects a 22.1% increase in comparison to net income of $133.5 million ($0.44 per share fully diluted) for the three months ended March 31, 2007. Net sales of $2.0 billion reflect a 53.8% increase compared to net sales of $1.3 billion for the three months ended March 31, 2007.
Finished steel shipments totaled 2.4 million tons, a 488.2-thousand-ton increase from the year-ago first quarter, primarily as a result of the acquisition of Chaparral Steel in September 2007. In comparison to the fourth quarter of 2007, which included the Chaparral facilities, shipment volume increased 9.5%.
Average mill finished steel selling prices increased 24.4% over the level in this same period in 2007 and 7% over the fourth quarter 2007 levels. Metal spread (the difference between mill selling prices and scrap raw material costs) was $458 per ton in the first quarter, an increase of $84 per ton from the same period in 2007. The company said the increase is primarily attributable to the higher-margin Chaparral products.
EBITDA was $387.4 million, which compares to EBITDA of $244.5 million for the three months ended March 31,
2007.
Selling and administrative expenses for the quarter included a non-cash pretax expense of $3.8 million to mark to market outstanding stock appreciation rights and expenses associated with other executive compensation agreements, which compares to a non-cash pretax expense of $8.8 million for the three months ended March 31, 2007.
During the first quarter, the company recorded a $22.7 million charge to write down the carrying value of auction-rate securities to their fair market value of $71.9 million; the write-down’s impact on earnings per share was approximately $0.05. The effective tax rate for the quarter, 34%, was unfavorably impacted by this write down, as no associated tax benefit was recorded for this item.
On April 1, 2008, Pacific Coast Steel, a majority owned and consolidated joint venture of the company, acquired all the assets of Century Steel, Inc., a reinforcing and structural steel contractor specializing in the fabrication and installation of structural steel and reinforcing steel products, for approximately $151.5 million. Concurrently with the acquisition of Century Steel, the company paid approximately $68.0 million to increase its equity participation in Pacific Coast Steel to approximately 84%.
CEO Comments—“Gerdau Ameristeel delivered another quarterly earnings record as strong global demand for steel has driven selling prices higher and provided us the opportunity to export our product globally,” commented Mario Longhi, President and CEO of Gerdau Ameristeel. “We offer a well-balanced steel product mix of rebar, merchant and structural shapes, wire rod and flat rolled sheet which when combined with our expanding downstream business, has allowed us to deliver these attractive results.
“Our balance sheet remains strong and we continue to seek opportunities to expand our business and provide attractive returns to our shareholders,” continued Longhi. “The Chaparral integration continues to exceed our expectations and we are now raising the annualized synergy expectations to $100 million by the end of 2008. We are also focused on the integration of the recent Century Steel fabrication business acquisition, which continues to expand our market presence in the western United States.
Our outlook for the near term remains positive despite the unprecedented level of volatility in raw material costs,” said Longhi. “Certain grades of scrap raw material costs have increased over $200 per ton since the end of the first quarter, however with our captive scrap operations which supply approximately one third of our scrap needs and announced selling price increases, we remain focused on keeping metal spreads robust. Import levels remain lower than historical highs, global steel demand and prices are creating export opportunities, and inventory levels in North America appear to be at low levels throughout the system. In addition, our flat rolled joint venture, Gallatin Steel, saw improving margins throughout the three months ended March 31, 2008 and this trend is expected to continue into the next quarter”.
Gerdau Ameristeel is the second-largest mini-mill steel producer in North America with an annual manufacturing capacity of approximately 12 million tons of mill finished steel products. Through its vertically integrated network of 19 minimills (including one 50%-owned joint venture minimill), 19 scrap recycling facilities and 65 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The company's products are generally sold to steel service centers, to steel fabricators, or directly to original equipment manufacturers for use in a variety of industries.
