Companhia Siderurgica (SID) Posts Q4 Earnings, Sales Solid

Companhia Siderúrgica Nacional (NYSE:SID) or CSN, yesterday, reported impressive financial results for the fourth quarter of 2017. This Brazilian steelmaker’s net earnings from continuing operations in the quarter were approximately R$377.4 million ($116.1 million) versus the loss of R$53 million ($16.1 million) recorded in the year-ago quarter.

Earnings per share in the quarter was R$0.27 or roughly 8 cents per American Depository Receipt (ADR). This compared favorably with the year-ago quarter’s loss of R$0.04 or 1 cents per ADR.

For 2017, the company’s net earnings were R$111.2 million ($34.9 million) versus the loss of R$853.1 million ($244.4 million) in 2016. Earnings per share were R$0.08 or 3 cents per ADR in 2017, better than the loss of R$0.61 per share or 17 cents per ADR in 2016.

Revenues Improved Y/Y

In the quarter, CSN’s net revenues were R$4,992.7 million ($1,536.2 million), increasing 10.5% year over year, driven by a rise in prices of steel products and iron ore.

Domestic revenues in the quarter grew 9.8% year over year, representing 47.5% of net revenues. International business flourished with revenues generated in the foreign market, increasing 11.1% year over year and representing 52.5% of net revenues.

The company operates through five business segments. The segments’ results for the fourth quarter are briefly mentioned below:

Steel: The segment’s revenues totaled R$3,435 million ($1,056.9 million) in the quarter, reflecting year-over-year growth of 16%.

Slab production grew 4% year over year to roughly 1,099 thousand tons while production of flat-rolled products inched up 1% year over year to 959 thousand tons. Production of long rolled products declined 17% to 45 thousand tons.

Steel sales volume grew 6% year over year to 1,253 thousand tons, of which, domestic sales accounted for 61.5%, overseas subsidiaries for about 32% and exports for roughly 6.5%.

Mining: The segment generated revenues of R$1,175 million ($361.5 million) in the quarter, down 10.8% year over year.

Iron ore sales were up 4% year over year to 9,561 thousand tons, of which, domestic sales accounted for 12.9% and international sales of roughly 87.1%.

Logistics: Revenues in the quarter were R$436 million ($134.2 million), up 13% year over year.

Cement: The segment’s revenues totaled R$106 million ($32.6 million) in the quarter, reflecting the year-over-year decline of 17.2%. Cement product in the quarter declined 9.4% year over year to 726 thousand tons while sales volume decreased 17.3% to 661 thousand tons.

Energy: Revenues in the quarter were R$104 million ($32 million), up 55.2% year over year.

For 2017, net revenues were R$18,524.6 million ($5,807.1 million), up 8% year over year.

Higher Proportion of Costs Hurt Margins

CSN’s cost of sales in the quarter increased 12.9% year over year to R$3,579.8 million ($1,101.5 million). It represented 71.7% of the quarter’s net revenues versus 70.1% in the year-ago quarter. Gross margin decreased 160 basis points (bps) to 28.3%.

As a percentage of net revenues, selling expenses increased 110 bps year over year to 11% while general and administrative expenses decreased 50 bps to 2.1% over the same time frame.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 4% year over year to R$1,203 million ($370.2 million) with a margin of 24.1% compared with 27.6% in the year-ago quarter. Net financial results were an expense of R$860 million ($264.6 million), up 27% year over year.

Balance Sheet & Cash Flow

Exiting the fourth quarter, CSN’s cash and cash equivalents were R$4,147.3 million ($1,253 million), slightly above R$4,138.8 million ($1,309.7 million) at the end of the previous quarter. Borrowings and financing decreased 8.1% sequentially to R$22,983.9 million ($6,943.8 million). Net debt to adjusted EBITDA ratio in the quarter was 5.66, down from 6.34 in the year-ago quarter.

In the quarter, the company generated net cash of R$477.7 million ($147 million) from its operating activities, down from R$585.4 million ($185.3 million) in the previous quarter. Capital spent on fixed assets/intangible increased 19.2% sequentially to R$343.9 million ($105.8 million).

Key Players in the Sector

Some stocks worth considering in the Zacks Basic Materials sector are LyondellBasell Industries N.V. (NYSE:LYB) , Cabot Corp. (NYSE:CBT) and Univar Inc. (NYSE:UNVR) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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