UPDATE 2-Brazil's Usiminas posts narrower loss; shares up 12 pct

Fri Jul 26, 2013 1:52pm EDT

* Loss at 22 mln reais is smaller than estimated in poll

* Usiminas sees margins at double-digits in coming quarters

* CFO Seckelmann says no bid was tendered for MMX's port

By Guillermo Parra-Bernal and Alberto Alerigi

SAO PAULO, July 26 (Reuters) - Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais SA reported a much smaller-than-expected second-quarter loss on Friday, with key indicators showing Chief Executive Officer Julián Eguren's turnaround efforts are bearing fruit.

Usiminas, as Brazil's No. 1 maker of flat steel is known, lost 22.1 million reais ($9.8 million) in the second quarter, compared with losses of 122.7 million reais in the prior three months and 86.5 million reais a year ago, according to a securities filing.

Shares of Usiminas, which has lost money for six straight quarters, jumped 12 percent to 8.75 reais, the biggest rise in a week. The stock shed 31 percent this year.

In signs of the company's recovery, adjusted earnings before interest, taxes, depreciation and amortization rose to the highest level in at least three years, the steel-making division had a resilient sales mix and growing margins, and unwanted inventory declined.

In addition, output of flat steel rose quarter-on-quarter despite Brazil's economic slowdown, revenue rose for the first quarter in three, and a lid was kept on costs.

"Results came in above market consensus, mainly on the operating margin, which may result in an upward revision of earnings forecasts for the coming quarters," Juliana Chu, an analyst with Votorantim Corretora, said in a client note.

According to a survey of six analysts by Thomson Reuters the Belo Horizonte, Brazil-based company was expected to record a net loss of 205 million reais in the quarter. A seventh analyst in the poll estimated net income of 104 million reais.

RIGID COST STRUCTURE

Eguren, a former executive at Italian-Argentine steel group Ternium SA who was named CEO early last year right after Ternium bought a controlling stake in the company, also has been dealing with a rigid cost structure that includes a lack of proprietary energy and mining assets and an aging mill infrastructure.

A tumble of about 10 percent in Brazil's currency, the real , in the second quarter stoked debt-servicing expenses, leading to the quarterly net loss, according to the filing.

Company executives were upbeat on a conference call to discuss earnings. Still, analysts including Leonardo Correa of HSBC Securities said a flagging economy and resistance to price hikes from clients and distributors could hamper Usiminas's recovery.

Output of raw steel rose 5.2 percent to 1.749 million tonnes, the first sequential increase in five quarters. While sales of steel products slipped 1.2 percent, Eguren's plan to cut exports and increase shipments to local clients, which hit 91 percent of sales in the quarter, fared better than expected.

Net revenue rose 1.6 percent to 3.244 billion reais, missing analysts' average target of 3.274 billion reais.

The average prices for some products such as plates were higher in the local market than overseas. There is room for a small increase of less than 2 percent in domestic flat steel prices, said Sergio Leite, Usiminas's senior vice president for sales, at the call.

Adjusted EBITDA, which excludes Usiminas' participation in other companies, surged 41 percent from the first quarter to 441 million reais, the highest level since at least the fourth quarter of 2010. EBITDA rose to 13.6 percent of revenue, compared with 9.8 percent in the fourth quarter.

Analysts had looked for EBITDA of 391 million reais and a margin of 11.9 percent.

Chief Financial Officer Ronald Seckelmann said in the call that margins will stabilize at double-digit levels in coming quarters, after staying below 10 percent for over a year.

The company has not bid for MMX Mineração e Metálicos SA's port, but it is attentive to a potential sale of such project, Seckelmann said. . MMX is part of Grupo EBX, a conglomerate of mining and energy companies led by tycoon Eike Batista that is in the process of breaking up to repay mounting debts.

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