Companhia Siderurgica Nacional (SID) or CSN’s financial results for the first quarter 2011 were encouraging as both its top-line and bottom-line results showed healthy growth year over year and sequentially.
Net income jumped 38% year over year and 37% sequentially to R$616 million (US$371.1 million), or R$0.42 per share (25 cents per ADR). Earnings results, however, lagged behind the Zacks Consensus Estimate of 40 cents per ADR.
The sequential improvement reflects higher revenue and lower operating expenses, offset partially by higher cost of sales.
Revenue
Considering the top line, net revenues of R$3,789 million (US$2,282.5 million) in the first quarter soared 19% year over year and 10% sequentially. The year-over- year growth was mainly due to higher steel and iron ore sales volume in the quarter.
Crude steel production in the quarter was down 4% year over year and 12% sequentially to 1.13 million tons while rolled steel production totaled 1.03 million tons, down 14% year over year and 5% sequentially.
Steel sales volume increased 17% sequentially to 1.22 million tons, of which domestic sales accounted for 85.0%, overseas subsidiaries 12% and direct exports around 3%. Sales volume, however, decreased by 3% on a year-over-year basis.
Iron ore sales improved 17% year over year and 3% sequentially to 6.6 million tons. Of total sales, domestic market accounted for 6% and exports 94%.
Volume sold for slabs fell drastically by 66.7%, while volume for cold – rolled sheets was up 14.3; for galvanized, it was down by 13.0%. Hot rolled steel sales volume increased 5.7% and tin plate declined by 11.6%.
Margins
During the first quarter, cost of goods sold went up 25.4% year over year to R$2,232.8 million (US$1,345.1 million), leading to a fall in gross margin to 41% from 44% in the year-ago quarter.
As a percentage of net revenue, selling expenses declined by 320 basis points year over year, while general and administrative expenses went down by 30 basis points year over year.
In the reported quarter, adjusted EBITDA totaled R$1,529.5 million (US$921.4 million) with a margin of 40% compared with 40% in the year-ago quarter. Net financial results grew 8.5% year over year to an expense of R$518.4 million (US$312.3 million).
Balance Sheet
Exiting the first quarter, Companhia Siderurgica had cash and cash equivalents of roughly R$11,115.0 million (US$6,777.4 million) compared with R$10,239.3 million (US$6,243.5 million) in the previous quarter. Loans, financing and debentures, net of current portion increased to R$19,779.9 million (US$12,060.9 million) from R$18,780.8 million (US$11,451.7 million) in the previous quarter.
Cash Flow
Net cash flow from operating activities in the first quarter improved significantly to R$917.7 million (US$552.8 million) versus R$272.0 million (US$150.3 million) in the first quarter of 2010. Capital spending totaled R$823.0 million (US$495.8 million), reflecting an increase of 82.5% year over year.
Companhia Siderurgica produces hot- and cold-rolled flat steel, galvanized sheets, and tin plates for the packaging, automotive, and construction industries. We currently maintain an Underperform recommendation.
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