Companhia Siderurgica (SID) Q3 Loss Narrows Y/Y, Sales Up

Brazilian steel maker Companhia Siderurgica Nacional (NYSE:SID) or CSN’s results for third-quarter 2016 improved in comparison with the year-ago quarter. Net loss contracted 80% year over year to R$106.6 million ($32.9 million).

Loss per share in the quarter was R$0.08 or 2 cents per American Depository Receipt.

Revenues

In the quarter, Companhia Siderurgica Nacional generated net revenue of R$4,469.2 million ($1,379.4 million), increasing 13.6% year over year. The year-over-year improvement was primarily due to higher sales volume in the mining segment.

Roughly 47% of Companhia Siderurgica Nacional's net revenue was generated from domestic markets, while the rest was sourced from international operations.

Crude steel production declined 21% year over year to 0.86 million tons while production of rolled steel decreased 16% to 0.835 million tons. Steel sales volume decreased 2% year over year to roughly 1.17 million tons, of which domestic sales accounted for 62%, overseas subsidiaries about 34%, and direct exports around 4%. Iron ore sales were up 35% year over year to approximately 10.2 million tons.

Steel revenues, comprising 59.9% of net revenue, grew 4.7% year over year. Revenues from the mining segment increased 38.7%, accounting for 27.3% of net revenue.

The logistics segment contributed 8.5% to net revenue, up 14.1% year over year. Cement revenues increased 22.8% and represented 2.9% of net revenue. Revenues from the Energy segment grew 13.3% year over year, accounting for 1.4% of net revenue.

Margins

Companhia Siderurgica Nacional’s margins improved in the third quarter. Cost of sales represented 71% of net sales, down from 76% in the year-ago quarter. Gross margin in the quarter increased 500 basis points (bps) to 29%.

As a percentage of net revenue, selling expenses decreased 128 bps year over year, while general and administrative expenses decreased 40 bps over the same time frame.

Adjusted earnings before interest, taxes, depreciation and amortization increased 45% year over year to R$1,239 million ($382.4 million), with a margin of 27.9% compared with 19.7% in the previous quarter. Net financial results included expense of R$760 million ($234.6 million).

Balance Sheet & Cash Flow

Exiting third-quarter 2016, Companhia Siderurgica Nacional had cash and cash equivalents of R$5,433.1 million ($1,671.7 million) compared with R$5,462 million ($1,691 million) at the end of the previous quarter. Borrowings and financing (net of current portion) decreased 1.7% sequentially to R$28,497.8 million ($8,768.6 million).

In the quarter, Companhia Siderurgica Nacional generated net cash of R$505.1 million ($155.9 million) from its operating activities, surging 142.2% from the previous quarter. Capital spend on fixed assets/intangible decreased 18.1% sequentially to R$382.6 million ($118.1 million).

Zacks Rank & Stocks to Consider

With a market capitalization of $4.6 billion, Companhia Siderurgica Nacional presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the steel industry include POSCO (NYSE:PKX) , Ternium S.A. (NYSE:TX) and Gerdau S.A. (NYSE:GGB) . While both POSCO and Ternium sport a Zacks Rank #1 (Strong Buy), Gerdau carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

POSCO and Gerdau’s earnings estimates for 2016 and 2017 have been revised upward over the last 60 days.

Ternium S.A. has a positive average earnings surprise of 11.38% for the last four quarters. Also, earnings estimates for 2016 and 2017 have been revised upward over the last 60 days.

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