Gerdau Ameristeel Reports 2009 2nd Quarter Results
08/10/2009 - Gerdau Ameristeel reports a net loss of $57.6 million on net sales of $1.0 billion for the second quarter, and a net loss of $90.3 million on net sales of $2.1 billion for the six months ended June 30, 2009.
Gerdau Ameristeel Corp. reported a net loss of $57.6 million on net sales of $1.0 billion for the second quarter, and a net loss of $90.3 million on net sales of $2.1 billion for the six months ended June 30, 2009.
Second Quarter Results—The $57.6-million net loss ($0.13 per share fully diluted) compares to net income of $262.1 million ($0.60 per share fully diluted) for the year-ago second quarter. Results include a $36.5-million pre-tax non-cash charge related to the closure and suspension of production at several of the company's steel mills. Excluding these charges, the Non-GAAP Adjusted Net Loss was $30.7 million ($0.07 per share fully diluted).
Net sales of $1.0 billion were flat in comparison to the three months ended March 31, 2009, but decreased 60% from the $2.5 billion for the year-ago second quarter. Weighted average mill selling price decreased 16% ($116 per ton) in comparison to the three months ended March 31, 2009 and decreased 31% ($270 per ton) in comparison to the second quarter of 2008. Finished steel shipments were 1.3 million tons, an increase of 13% in comparison to the first quarter of 2009 but a decrease of 46% from the year-ago second quarter.
Metal spread, the difference between mill selling prices and scrap raw material costs, was $440 per ton, a decrease of $59 per ton from the same period in 2008. In comparison to the three months ended March 31, 2009, metal spreads decreased by $88 per ton as the decrease in selling prices was much greater than the decrease in scrap raw material costs.
Scrap raw material cost used in production was $172 per ton, a decrease of $211 per ton compared to the three months ended June 30, 2008 and a decrease of $28 per ton compared to the three months ended March 31, 2009.
EBITDA was $64.8 million, compared to EBITDA of $521.1 million for the year-ago quarter. Despite the reduction in metal spread, EBITDA improved 33% from the $48.7 million for previous quarter.
Cost of sales included a pre-tax charge of $14.6 million to write down the value of certain inventory to its current market value. The write-down was primarily related to the impact of certain high-priced raw materials purchased prior to the decline in market selling prices for the company's finished products.
The company also incurred a $14.5-million foreign exchange loss as the Canadian dollar strengthened approximately 8% in comparison to the US dollar. This charge arose from the revaluation of US dollar investments held by the company’s Canadian entities.
Six Month Results—The $90.3-million net loss ($0.21 per share fully diluted) compares to net income of $425.1 million ($0.98 per share fully diluted) for the six months ended June 30, 2008. The Non-GAAP Adjusted Net Loss (excluding the non-cash charges described above) was $63.4 million ($0.15 per share fully diluted).
Net sales of $2.1 billion compare to net sales of $4.6 billion from the same period in 2008. Weighted average mill selling price decreased 18% ($143 per ton) compared to the same period in 2008 while finished steel shipments decreased 48% to 2.5 million tons as compared to 4.9 million tons for the same period in 2008.
Metal spread was $481 per ton and remained flat in comparison to the same period in the prior year. EBITDA was $113.5 million compared to EBITDA of $908.5 million for the six months ended June 30, 2008.
Cost of sales included a pre-tax charge of $33.0 million to write down the value of certain inventory to its current market value, which was related primarily to certain high-priced raw materials purchased prior to the decline in market selling prices for the company's finished products.
CEO Comments—"While market conditions continue to present a difficult operating environment, we did see promising signs that conditions may have reached a bottom,” said Mario Longhi, President and CEO of Gerdau Ameristeel. “During the quarter, we saw a stabilization of volumes as destocking by our customers appears to be slowing, as well as a firming of steel prices across all steel products.
“We have made tremendous progress on further reducing costs and implementing productivity initiatives which have resulted in improved EBITDA despite the pressure experienced with respect to selling prices. In addition, we continue to focus on further strengthening our balance sheet which has resulted in continued liquidity growth,” added Longhi. “We believe this focus will ensure that Gerdau Ameristeel can continue to perform in an otherwise difficult operating environment and position us well for when conditions improve.”
Financial Position—At June 30, 2009, the company had $1.1 billion of cash and short-term investments, an increase of $443.9 million from the levels at December 31, 2008. In addition, the company had approximately $538.7 million of availability under secured credit facilities which resulted in a total liquidity position of approximately $1.7 billion at June 30, 2009. On July 17, 2009, the company announced its intention to utilize some of its cash to fully redeem its $405 million 10 3/8% senior notes due in 2011 on August 31, 2009.
Mill Closures—The company announced in early June the suspension of production at the Sayreville, N.J., steel mill, and closure of the rolling mill in Perth Amboy, N.J. At that time, the company also entered into discussions with the United Steel Workers regarding the potential closure of the Sand Springs, Okla., steel mill. The company has since entered into a closing agreement with the USW with respect to the Perth Amboy facility and discussions regarding the potential closure of the Sand Springs facility are continuing. After further evaluation, the company has decided not to suspend production at the Sayreville mill. The company recorded a $36.5 million charge during the current quarter. Further charges of up to $50 million (after tax) could be incurred depending on the outcome of the Sand Springs discussions,
Gerdau Ameristeel is the second-largest mini-mill steel producer in North America with 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), 23 scrap recycling facilities and 57 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The company's products are generally sold to steel service centers, steel fabricators, or directly to original equipment manufacturers for use in a wide variety of industries. Gerdau Ameristeel's majority shareholder is the Gerdau Group, a 100+-year-old-steel company, the leading company in the production of long steel in the Americas and one of the major specialty long steel suppliers in the world.
