UPDATE 2-Usiminas net beats estimates, expects tough market

* Net income rises 14 pct y/y, beats estimates in poll

* Sales tumble vs Q2, reflecting slowdown, imports

* Financial expenses tumble; EBITDA surges 76 pct
(Adds quarter-on-quarter comparisons, comments from filing,
performance per business segment in paragraphs 1-4, 8-16)

By Guillermo Parra-Bernal

SAO PAULO, Oct 28 (BestGrowthStock) – Usiminas, Brazil’s biggest
producer of flat steel, posted a 14 percent jump in third-quarter
profit as higher prices and lower financial expenses helped it
weather the impact of a stronger currency and soaring steel
imports in its home market.

Profit for the quarter rose to 495 million reais ($290
million), beating the average estimate of 389 million reais in a
Reuters poll of five analysts published earlier this week. The
company earned 433 million reais a year earlier.

The better-than-expected year-on-year numbers were helped by
a low base of comparison as Brazilian steelmakers were a year
earlier struggling with the deepest global recession since the
1930s.

But on a sequential basis, revenue, operational profit and
sales volumes fell from the second quarter, as the local market,
where Usiminas sells 80 percent of its output, lost momentum.

Analysts polled by Reuters said third-quarter earnings for
the industry were likely to falter on narrowing profit margins
and weaker output, a situation that should continue in upcoming
quarters. [ID:nN27271192]

“This very fierce competition environment, which we believe
brings about a worrisome trend of de-industrialization, coupled
with a surge in the cost of raw materials … has badly affected
the industry’s profitability,” the filing said.

Usiminas’ mining unit posted a gain of 197 million reais in
the quarter. The filing did not provide data for the year earlier
period.

WEAK SEQUENTIAL NUMBERS

Nonvoting shares of Usiminas (USIM5.SA: ), the company’s
most-widely traded class of stock, have declined in the past
three sessions. They shed 0.1 percent to 20.05 reais on
Wednesday, their lowest level in five days.

Compared with the second quarter, Usiminas’ net income jumped
43 percent despite a 10 percent tumble in revenue. In the second
quarter, the company earned profit of 347 million reais.

The result was also helped by a 6 percent gain in the
Brazilian currency, the real (BRBY: ), against the dollar during
the third quarter, the filing said. The stronger the local
currency, the lower Usiminas’ debt-servicing costs.

The company reported that prices for hot and cold-rolled
plates rose 3 percent in a quarter-on-quarter basis, while it
gained market share in the local market thanks amid an increase
in sales volumes at all product segments of its steel unit.

The auto industry segment provided one bright spot for its
customized steel products. The steel unit sold 18 percent more
plates and slabs compared with the second quarter, the filing
said.

Steelmakers have benefited from record car sales in Brazil
and a surge in demand for building materials amid President Luiz
Inacio Lula da Silva’s massive $1 trillion investment plan for
the next four years. The plan, known in Brazil as PAC, involves
the construction of dams, ports, roads and satiation programs
through 2014.

YEAR-ON-YEAR DATA

The third-quarter year-on-year numbers surprisingly flew in
the face of weak global demand, strong inventory build-up in
Brazil and a flurry of imports that depressed local prices.

Net revenue rose 13 percent to 3.24 billion reais, while cost
of goods sold fell 4 percent to 2.44 billion reais, the company
said in a regulatory filing. Financial expenses fell 81 percent
to 35.8 million reais.

EBITDA, or earnings before interest, tax, depreciation and
amortization, soared 76 percent to 735 million reais in the
quarter, from 417 million reais, a year earlier, in line with the
average Reuters estimate.

EBITDA fell from 872 million reais in the second quarter.

Profitability per unit, as measured by EBITDA per tonne
produced, fell to $376 per metric tonne of steel produced in the
third quarter, compared with $450 a tonne in the second quarter.

That probably led management to sell less overseas and
instead place more of its steel in the domestic market, despite
the challenge from imports, analysts said.

“Usiminas’ current cash cost for semi-finished products is
higher than the international price, therefore lower export
volumes imply in higher margins,” Rodrigo Barros, an analyst with
Deutsche Bank, said.

EBITDA rose to 22.7 percent of revenue, compared with 21.2
percent in the survey and 14.6 percent a year earlier.

($1=1.707 reais)
(Additional reporting by Alberto Alerigi Jr. in Sao Paulo;
Editing by Derek Caney)

UPDATE 2-Usiminas net beats estimates, expects tough market