* Net income at 143 mln reais misses poll estimate
* Decision to cut investments follows weak outlook
* Output, sales, revenue underperform in quarter
* Shares up 1.3 pct in afternoon
By Guillermo Parra-Bernal and Alberto Alerigi
SAO PAULO, Feb 21 Gerdau SA cut its
five-year investment plan by 17 percent, as the world's No. 2
maker of steel for builders faces global economic uncertainty
and slumping profit.
Planned capital expenditures for its steel and mining units
were trimmed to 8.5 billion reais ($4.3 billion) for the
2013-2017 period, from 10.3 billion reais for the 2012-2016
period, the Porto Alegre, Brazil-based company said on Thursday
in a securities filing along with fourth-quarter results.
"We revised this plan to cushion the company from
uncertainties hurting the global economy," Chief Executive
Officer Andre Gerdau-Johannpeter told reporters on a conference
call to discuss earnings. "We are picking our future capital
expenditure plans more selectively."
Steel mills in Brazil are facing their worst crisis in years
as a strengthening local currency, the rising cost of wages and
raw materials and competition from imports hampered their
ability to stay competitive. Two years of sub-par economic
growth in Latin America's largest economy have added to the
The company's decision is a setback for Brazilian President
Dilma Rousseff's efforts to jump-start the ailing economy.
Business leaders blame a weak global economy, Rousseff's
sometimes-confusing economic policy and her tendency to
interfere in the private economy for the drop in fixed
Declining output and stagnant sales drove fourth-quarter
profit at Brazil's largest steelmaker down about 65 percent from
the prior three months. Net income tumbled 70 percent from the
year-earlier period to 143 million reais, missing the 242
million-reais estimate in a Thomson Reuters poll of five
Profit fell for the second straight quarter, along with
operational profitability and other efficiency indicators.
Shares recouped early losses, and were up 1.3 percent at
15.90 reais in midafternoon. The stock, which is down 4.2
percent this year, had declined for five straight sessions.
The company's decision to cut planned investments signaled a
commitment by Gerdau-Johannpeter to maintain a healthy debt
profile and cash-generation discipline, and stay focused on
delivering a higher return on assets, traders said.
"We believe the market was already expecting weak results,"
JPMorgan Securities analyst Rodolfo de Angele wrote in a client
Gerdau slashed capital expenditures by 24 percent in the
fourth quarter. Among the projects untouched by the revision to
the investment plan are a plant to manufacture section and
profile steel in Mexico, the iron ore mining unit and a
hot-rolled coil factory in Brazil, and a facility in India.
Expansion of the iron ore mining unit is key for Gerdau to
lower its dependence on scrap for raw material. The company
expects to export between 1 million and 1.5 million tonnes of
iron ore this year. It could produce up to 16 million tonnes by
2016, Gerdau-Johannpeter added.
"Investments in flat steel, primarily the rolled steel
plants, had a significant weighting in the previous investment
plan - we don't have such a pressing outlook for investments in
one specific segment," he said.
Gerdau, which is diversifying from production of rods and
other products used in the construction industry toward flat
steel, plans to gradually win market share in the latter sector.
Production of flat steel, such as plates and rolled steel, could
range between 300,000 and 400,000 tonnes by the end of this
year, Chief Financial Officer André Pires said on the call.
Output of raw steel fell for a second straight quarter to
4.186 million tonnes, down 12 percent from the prior three
months, as the company sought to reduce inventory. Sales dropped
9.6 percent as its Brazil, Latin America, North America and
specialty steel segments posted disappointing results.
Net revenue fell to the lowest level in five quarters,
tumbling 8.5 percent to 8.99 billion reais. The cost of goods
sold slipped 7.6 percent, underscoring efforts by
Gerdau-Johannpeter to tame the impact of rampant cost and raw
material inflation in Brazil as well as rising wages on the
company's home turf.
Earnings before interest, taxes, depreciation and
amortization dropped about 14 percent to 891 million reais,
below the analysts' estimate of 928.8 million reais. EBITDA, as
the indicator of operational profitability is known, fell to 9.9
percent of revenue, the lowest margin in at least three years.
EBITDA per tonne produced, a measure of operational
profitability at steel mills, fell to 213 reais in the fourth
quarter from 218 reais in the preceding quarter and 217 reais a