Gerdau Ameristeel Reports 2nd Quarter Earnings
08/07/2008 - Gerdau Ameristeel reports net income of $262.1 million on net sales of $2.5 billion for the second quarter, and net income of $425.1 million on net sales of $4.6 billion for the six months ended June 30, 2008.
Gerdau Ameristeel Corp. reported record net income of $262.1 million on net sales of $2.5 billion for the second quarter, and net income of $425.1 million on net sales of $4.6 billion for the six months ended June 30, 2008.
Second Quarter Results—The $262.1 million net income ($0.60 per share fully diluted) reflects an 88.4% increase compared to net income of $139.1 million ($0.45 per share fully diluted) for the three months ended June 30, 2007. Net sales of $2.5 billion reflect a 92.3% increase compared to net sales of $1.3 billion for the three months ended June 30, 2007.
Finished steel shipments increased to 2.5 million tons, an increase of 805 thousand tons from the three months ended June 30, 2007, primarily as a result of the acquisition of Chaparral Steel in September 2007. Average mill-finished steel selling prices increased 36.1% over the level in this same period in 2007 and 19.9% over first-quarter 2008 levels. In comparison to the first quarter of 2008, shipment volume increased 5.1%.
Metal spread—the difference between mill selling prices and scrap raw material costs—was $499 per ton, an increase of $83 per ton from the same period in 2007. The company attributes the increase primarily to the higher-margin structural products.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $521.1 million, which compares to EBITDA of $240.3 million for the three months ended June 30, 2007.
Six Month Results—The $425.1 million net income ($0.98 per share fully diluted) reflects a 55.9% increase compared to net income of $272.7 million ($0.89 per share fully diluted) for the six months ended June 30, 2007. Net sales of $4.6 billion compare to net sales of $2.7 billion for the first six months of 2007.
Metal spread was $478 per ton, an increase of $85 per ton from the first six months of the prior year. A significant increase in alloys, energy and other raw material consumables partially offset the increase in metal spread. EBITDA was $908.5 million, which compares to EBITDA of $484.9 million for the six months ended June 30, 2007.
Three- and six-month results were impacted by charges to write down the carrying value of purchased investments (comprising variable-rate debt obligations, known as auction-rate securities) to their fair market value of $54.2 million. During the three and six months ended June 30, 2008, the company recorded $17.0-million and $39.7-million charges, respectively, which impacted earnings by approximately $0.04 and $0.09 per share, respectively. The effective tax rate was unfavorably impacted by this write-down, as no associated tax benefit was recorded for this item.
Other Developments—On April 1, 2008, Pacific Coast Steel (PCS), a majority owned and consolidated joint venture of the company, acquired substantially 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 $148.5 million. Century Steel, headquartered in Las Vegas, Nev., operates reinforcing and structural steel contracting businesses in Nevada, California, Utah and New Mexico. Concurrently with the acquisition of Century, the company paid $82.0 million to increase its equity participation in PCS to approximately 84%.
In June 2008, the company increased its Senior Secured Credit Facility from $650.0 million to $950.0 million. At June 30, 2008, there was nothing drawn against this facility which is secured by the company's inventory and accounts receivable.
On July 14, 2008, the company acquired substantially all of the assets of Hearon Steel Co., a rebar fabricator and epoxy coater with locations in Muskogee, Tulsa and Oklahoma City, Okla.
On August 5, 2008, the Board of Directors approved a quarterly cash dividend of $0.02 (two US$ cents) per common share, payable September 4, 2008 to shareholders of record at the close of business on August 20, 2008.
CEO Comments—"We recorded the highest quarterly level of shipments, revenue and earnings in the history of Gerdau Ameristeel during the second quarter, attributable to the successful execution of our strategic plans over the past several years,” commented Mario Longhi, President and CEO of Gerdau Ameristeel. “The acquisition of Chaparral Steel diversified our product mix into high margin structural steel products, while our acquisition of Century Steel expands our value-added downstream fabrication and installation business in the western United States markets.
“Our expansive product offerings and large geographic footprint reduce our dependence on any one customer industry segment and help us produce these attractive results for our shareholders,” continued Longhi. “In addition, our recycling facilities, which provide a captive source for approximately 40% of our scrap raw material requirements, have reduced the impact of the significant volatility that has been experienced in this market during 2008.
“While we continue to experience significant inflation in our raw material costs, we have been able to increase selling prices to preserve our margins. North American demand remains solid across our main product lines including rebar, merchant and structural bars and wire rod. In addition, we have been able to supplement our North American shipments with strategic export opportunities to keep our facilities operating at near-capacity levels.
“Our customer base has shown resilience to the general weakening of the North American economy as our order backlog remains solid and new contract activity continues in our downstream business which is a leading indicator for our mill demand. This, combined with import levels which have moderated from historical highs, global steel demand remaining strong, and relatively low inventory levels throughout the North American system, gives us a positive outlook for the coming months."
Gerdau Ameristeel is the second-largest minimill 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 68 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 wide variety of industries.
