UPDATE 1-Brazil's Gerdau beats estimates but overall results disappoint

Tue May 7, 2013 8:46am EDT

* Net income at 160 mln reais beats estimates in poll

* Margin declines stem from climbing costs, expenses

SAO PAULO May 7 (Reuters) - Brazil's Gerdau SA slightly beat first-quarter net income estimates on Tuesday as costs rose less than expected, signaling that the largest steelmaker in the Americas is banking on prudence to bolster profits.

The Porto Alegre, Brazil-based company posted net income of 160 million reais ($79.6 million) in the quarter, down 60 percent on an annual basis but up 12 percent from the prior three months, according to a securities filing. The result beat the average profit estimate of 151 million reais in a Thomson Reuters poll with eight analysts.

Results disappointed as output fell on an annual basis because of maintenance stoppages and operating earnings slumped. Average prices rose in Brazil during the quarter even after sales volumes faltered; a tough winter season hampered Gerdau's underperforming North American unit for another quarter.

Steel mills in Brazil are facing their worst crisis in years as their ability to stay competitive has been compromised by rising labor and raw materials costs, two years of sub-par economic growth and declining global prices that are making imported steel more attractive in Brazil.

Revenue for Gerdau, also Brazil's biggest steel producer by volume, came in at 9.17 billion reais, up 4.7 percent from the fourth quarter of last year, the filing said. The number compares with a estimate of 9.414 billion reais in the poll.

Costs rose 3.6 percent, less than the 5 percent expected in the poll. Expenses rose 6 percent in the same period, the filing said.

Earnings before interest, tax, depreciation and amortization, a gauge of operational profitability known as EBITDA, came in at 805 million reais in the quarter, well below the 886 million reais estimated by analysts in the poll.

Margins fell for the fifth straight quarter, with EBITDA dropping to 9 percent of revenue from a 9.9 percent so-called EBITDA margin in the fourth quarter of last year.

Management plans to discuss first-quarter earnings in a conference call later on Tuesday.

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