Gerdau Ameristeel Corp. (GNA)
Q2 2010 Earnings Call
August 5, 2010 02:30 pm ET
Mario Longhi - CEO
Barbara Smith - CFO
Kuni Chen - Bank of America
David Taylor - Goodman & Company
Charles Bradford - Affiliated Research
Michael Willemse - CIBC World Markets
Timna Tanners - UBS
Mark Parr - KeyBanc Capital
Corinna Petry - American Metal Markets
Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Gerdau Ameristeel Corp. Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions).
The company would like to draw your attention to the Safe Harbor provisions in the company’s press release regarding forward-looking statements and that EBITDA is a non-GAAP financial measure and that it certainly is not the only measure.
Certain statements made on this call will be forward-looking statements. Actual results could differ materially from conclusions, forecasts, or projections because certain assumptions were made in drawing those conclusions or making these forecasts or projections.
You should refer to the Company’s August 5, 2010 press release for additional information about the material factors that could cause actual results to vary and the assumptions used to draw a conclusion or make a forecast or projection. I’d like to remind everyone that this conference call is being recorded on Thursday, August 5, 2010 at 2:30 pm Eastern Time.
I will now turn the conference over to Mr. Mario Longhi, President and Chief Executive Officer, and Ms. Barbara Smith, Vice President and Chief Financial Officer. Please go ahead, Mr. Longhi.
Thank you, Sarah. Ladies and gentlemen, good afternoon and welcome to our second quarter 2010 conference call. I am pleased to say that for the second quarter of 2010, we are reporting a profit of $46.7 million for Gerdau Ameristeel. Our performance during the quarter can be certainly attributed to the actions we took during 2009 to improve cost efficiency and we’re still focused on it, also to slightly better shipments and improved metal spreads.
During the quarter we maintained our manufacturing costs inline with those of the first quarter, despite higher scrap prices. Given that the first quarter manufacturing costs were the lowest, they have been since September 2007. This once again shows the benefits of the initiatives we have undertaken and confirms our capability to quickly respond to changing market conditions.
For the second quarter net income was $46.7 million or $0.11 per share, which compares to a net loss of $52.4 million or $0.12 per share for the second quarter of 2009. We generated a $136.4 million in EBITDA during this quarter, which was a significant increase over the last year’s second quarter.
We saw second quarter shipments increased 3% over the first quarter. This is in line with what we expected and communicated on our last conference call. However, we remain cautious and believe that this economic recovery will progress slowly over the coming quarters.
Several product categories continue to show solid demand during the second quarter. SPQ volume has been strong since the beginning of the year due mainly to the increase in demand from the energy sector, automotive sector as well as heavy machinery and industry equipment customers.
Merchant products are seeing good demand also as inventories throughout the system remain at low levels. Rebar demand has been stable in the second quarter, but there have been some signs of softening recently. And looking at beams we’ve seen an up tick in demand, but the overall market is still difficult. However, as the economy slowly improves over the long-term, we believe demand for rebar and structural products should fall.
Steel prices during the second quarter increased 9% over the previous quarter. The increase was primarily driven by a rise in scarp costs, which began in the first quarter. If you recall at that time we were unable to raise our own prices fast enough to match this scrap price increase, which occurred.
In the second quarter we were able to catch-up with those scrap price increases and that led to an increase in our metal spread. Turning to the export market for the second quarter activity was strong and we shipped 202,000 tons. There has been some pressure on demand and pricing. And bookings were 119,000 tons in the quarter versus the 195,000 tons in the first quarter of this year.
Nonetheless I continue to expect an overall good export year for Gerdau Ameristeel. Looking ahead I believe the US economic recovery will continue to be a slow, uneven and gradual one. High unemployment, tight credit and other economic uncertainties continued to be returning to a more profound recovery. I want to thank the Gerdau Ameristeel team for all their efforts over the past several quarters and express to them not only how proud I am on the second quarter profitability and results, but how the organization has achieved them.
As most of you are aware Gerdau Ameristeel and Gerdau S.A. have entered into an agreement pursuing to which Gerdau S.A. has agreed to acquire all of the common shares of Gerdau Ameristeel that it does not already own. Due to the pending nature of the transaction we are not able to address any questions in that regard. Instead please refer to the proxy materials that we’ll mail to shareholders and filed with the appropriate regulatory authorities in Canada and the United States.