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Gerdau Ameristeel Reports Net Loss in 3Q
11/09/2009 - Gerdau Ameristeel reports a net loss of $25.4 million for the three months ended September 30, compared to net income of $316.9 million for the same period in 2008.For the nine-month period, the company incurred a net loss of $115.6 million compared to net income of $742.0 million a year ago.
Gerdau Ameristeel Corp. reported a net loss of $25.4 million ($0.06 per share fully diluted) for the three months ended September 30, compared to net income of $316.9 million ($0.73 per share fully diluted) for the same three months in 2008.
Included in these results is a $78.5 million pre-tax charge related to actions announced earlier this year to stop production at certain steel mills and a pre-tax charge of $11.9 million related to the early extinguishment of certain debt obligations. Excluding these charges, the Non-GAAP Adjusted Net Income was $33.5 million ($0.08 per share fully diluted).
For the nine months ended September 30, Gerdau Ameristeel incurred a net loss of $115.6 million ($0.27 per share fully diluted) compared to net income of $742.0 million ($1.71 per share fully diluted) for the nine-month period in 2008. The Non-GAAP Adjusted Net Loss for the nine months, excluding the charges described above, was $30.0 million ($0.07 per share fully diluted).
During the 3Q of 2009, net sales were $1.1 billion, an increase of $110.2 million in comparison to 2Q sales, but a decrease of 56% from the $2.5 billion for the three months ended September 30, 2008. Weighted average mill selling price remained flat in comparison to the three months ended June 30, but represented a decrease of 41% or $437 per ton in comparison to 3Q 2008. Finished steel shipments were 1.5 million tons for 3Q 2009, an increase of 12% compared to the previous quarter but a decrease of 29% from a year ago.
Net sales for the nine months ended September 30 were $3.2 billion compared to net sales of $7.1 billion for the same period in 2008. Weighted average mill selling prices for the nine months decreased 26% or $233 per ton compared to 2008, while finished steel shipments decreased 43% to 4.0 million tons compared to 7.0 million tons for the same period in 2008.
For 3Q 2009, metal spread—the difference between mill selling prices and scrap raw material costs—was $405 per ton, a decrease of $257 per ton from 3Q 2008. Metal spreads decreased by $35 per ton compared to 2Q 2009, due primarily to an increase in scrap raw material costs. Scrap raw material cost used in production was $213 per ton, a decrease of $180 per ton compared to the same three-month period in 2008. For the nine months ended September 30, metal spread was $452 per ton and decreased $78 per ton vs. the same period in the prior year.
EBITDA was $163.0 million for the quarter, vs. $581.4 million for the same three months in 2008. Despite the reduction in metal spread, EBITDA improved 152% from the $64.8 million for the previous quarter. For the nine-month period, EBITDA was $276.4 million in 2009 compared to $1.5 billion in 2008.
During the three and nine months ended September 30, the company incurred a foreign exchange loss of $18.8 million and $30.5 million, respectively, as the Canadian dollar strengthened about 7% and 12% in comparison to the US dollar. This charge arose from the revaluation of US dollar investments held by the company's Canadian entities.
During the second quarter of 2009, Gerdau Ameristeel announced plans to stop production at certain facilities, which it did at its Perth Amboy, N.J., and Sand Springs, Okla., facilities during the third quarter. The company recorded a $78.5 million and $115.0 million pre-tax charge for the three and nine months ended September 30, respectively, related to these actions.
On August 31, 2009, the company completed the previously announced redemption of its $405 million 10 3/8% Senior Notes due in 2011 at a redemption price of $412.3 million representing 101.792% of the outstanding principal amount. The redemption price was paid entirely with cash and the notes were paid in full and are no longer outstanding. For the three and nine months ended September 30, 2009, the company recorded a charge of $11.9 million related to this redemption.
At September 30, Gerdau Ameristeel had $821.1 million of cash and short-term investments, an increase of $132.7 million from the levels at December 31, 2008. Excluding the redemption of notes, the company has generated $545.0 million in cash and short-term investments in 2009. In addition, it had approximately $570.3 million of availability under secured credit facilities, which resulted in a total liquidity position of approximately $1.4 billion at September 30, 2009.
CEO Comments — "We have continued to make progress in a number of areas during the past quarter, which has resulted in the third successive quarterly growth in EBITDA,” said Mario Longhi, President and CEO of Gerdau Ameristeel. “This is a testament of our ability to quickly respond to market conditions and has resulted in the generation of $276.4 million of EBITDA for the nine months ended September 30, 2009. Destocking of inventory by our customers seems to have been completed and resulted in a 12% quarter over quarter increase in our shipment levels. To keep pace, the capacity utilization levels of our mills improved as production increased approximately 24% in comparison to the second quarter and manufacturing costs continued their downward trend as our employees continue to seek more efficient ways of producing steel.
“We have substantially completed the activities related to the previously announced actions at our Sand Springs and Perth Amboy locations. As a result of leveraging our extensive network of steel producing facilities, we have been able to meet all of our customers' needs during this process,” Longhi noted. “Our ability to continue providing superior service to our customers has been critical in the growth of our order rate. This focus on developing long-term service relationships is also being applied to our export customers as we expect this market will continue to provide opportunities for us in the future.
“We expect normal seasonal market softness during the fourth quarter of 2009 and production will be adjusted to meet demand,” Longhi added. “However, we are confident that the actions we have taken are sustainable and will provide for attractive returns for our shareholders as conditions improve."
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 mini-mills, scrap recycling facilities, and downstream operations, the company serves customers throughout the United States and Canada. Its products are generally sold to steel service centers, steel fabricators, or directly to OEMs for use in a variety of industries, including non-residential, infrastructure, commercial, industrial and residential construction, metal building, manufacturing, automotive, mining, cellular and electrical transmission and equipment manufacturing. Gerdau Ameristeel's majority shareholder is the Gerdau Group.
