Gerdau Ameristeel Reports Loss for 2009 First Quarter
05/08/2009 - Gerdau Ameristeel reports a net loss of $32.7 million on net sales of $1.0 billion for the three months ended March 31, 2009.
Gerdau Ameristeel Corp. reported a net loss of $32.7 million on net sales of $1.0 billion for the three months ended March 31, 2009.
The $32.7-million ($0.08 per share fully diluted) net loss compares to net income of $163.0 million ($0.38 per share fully diluted) for the year-ago first quarter. The $1.0-billion net sales reflect a 50% decrease from net sales of $2.0 billion for the year-ago first quarter.
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"The improvement in EBITDA in the quarter is the result of the aggressive actions that we initiated during the fourth quarter to curtail production, reduce inventory levels and improve our cost structure,” commented Mario Longhi, President and CEO of Gerdau Ameristeel.
“Our early recognition of the severe impact of the global economic slowdown on our business allowed us to operate our facilities during the first quarter of 2009 at increased production rates in comparison to the fourth quarter of 2008, to realize the benefit of cost reduction efforts through reduced manufacturing costs and to continue to generate strong cash flows.
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Metal spread (the difference between mill selling prices and scrap raw material costs) was $528 per ton, reflecting a $70-per-ton increase from the year-ago first quarter. Conversely, metal spreads decreased by $108 per ton as compared to the previous quarter (Q4 2008) as the decrease in selling prices was much greater than the decrease in scrap raw material costs. Scrap raw material cost used in production for the first quarter decreased $77 per ton (28%) compared to the year-ago first quarter.
EBITDA was $48.6 million, which compares to EBITDA of $387.4 million for the year-ago first quarter. Results reflect a 151% increase from EBITDA of $19.4 million in the prior quarter (Q4 2008), primarily as a result of the company’s cost-reduction initiatives.
Cost of sales (exclusive of depreciation and amortization) includes an $18.4 million pre-tax charge to write down the value of inventory to its current market value; the write-down was primarily related to the impact of some high-priced raw materials that were purchased prior to the 4th-quarter decline in finished-product selling prices. Although raw material costs typically fluctuate with the market selling prices for finished product, the significantly lower production rates led to a slow-down in consumption of the higher-priced raw material inventory. The need for a lower-of-cost-or-market write-down arose when consumption of the higher-priced inventory did not keep pace with the fall in selling prices for the company's finished products.
At March 31, 2009, the company had $865.2 million of cash and short-term investments, reflecting a $176.9 million increase from the levels at December 31, 2008. In addition, the Company had approximately $671.4 million of availability under secured credit facilities, which resulted in a total liquidity position of approximately $1.5 billion at March 31, 2009.
In support of the company's desire to be prudent given current economic circumstances, the Board of Directors decided not to declare the usual $0.02 per share dividend this quarter. Consistent with its dividend policy, the Board intends to reevaluate the payment of dividends in subsequent quarters.
Looking ahead to the next quarter and the uncertain economic outlook for the balance of 2009, Gerdau Ameristeel President and CEO Mario Longhi commented that the company would continue to focus on factors within its control. He said the company would continue to reduce its investment in working capital while ensuring that the necessary inventory is available to fulfill customer orders. Longhi also said the company continues to seek further opportunities to reduce its costs.
Longhi noted that the company had further enhanced its liquidity during the first quarter, and that its leadership was continuing to focus on maintaining a strong balance sheet. Concluding, Longhi voiced his belief that the company—which primarily serves the non-residential construction industry—is “well-positioned to benefit from the recently announced economic stimulus package and infrastructure development programs.”
Gerdau Ameristeel, the second-largest minimill steel producer in North America, has 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), 23 scrap recycling facilities and 60 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 variety of industries. Gerdau Ameristeel's majority shareholder is the Gerdau Group, a 100+-year-old steel company, the largest producer of long steel products in the Americas, and the world leader in specialty long steel for the automotive industry.
Gerdau Ameristeel is anticipating early adoption of International Financial Reporting Standards ("IFRS") to replace its current US GAAP reporting requirements, which will help to align the company's financial reporting requirements with its majority shareholder Gerdau SA. While US GAAP is in many respects similar to IFRS, the conversion is expected to result in differences in recognition, measurement and disclosures in the company's financial statements. The company is continuing to assess the potential impact of the anticipated conversion.
