Gerdau Ameristeel Corp. reported net income of $316.9 million on net sales of $2.5 billion for the third quarter, and net income of $742.0 million on net sales of $7.1 billion for the nine months ended September 30, 2008.
Third Quarter Results—The $316.9 million net income ($0.73 per share fully diluted) represents a 156.0% increase in comparison to net income of $123.8 million ($0.40 per share fully diluted) for the three months ended September 30, 2007. Net sales of $2.5 billion represent a 78.6% increase from $1.4 billion for the three months ended September 30, 2007.
Finished steel shipments of 2.1 million tons reflect an increase of 305 thousand tons from the three months ended September 30, 2007, primarily as a result of the acquisition of Chaparral Steel in September 2007. Additionally, average mill-finished steel selling prices increased 60.1% over the level in this same period in 2007 and 19.6% over second-quarter 2008 levels.
Metal spread—the difference between mill selling prices and scrap raw material costs—was $662 per ton, an increase of $222 per ton from the year-ago third quarter. The increase is partially attributable to the higher margin structural products from the addition of the Chaparral products.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $581.4 million, which compares to EBITDA of $250.2 million for the year-ago third quarter.
Nine Month Results—The $742.0 million net income ($1.71 per share fully diluted) represents an increase of 87.1% compared to net income of $396.5 million ($1.29 per share fully diluted) for the nine months ended September 30, 2007. Net sales of $7.1 billion reflect a 73.2% increase compared to $4.1 billion for the nine months ended September 30, 2007.
Finished steel shipments of 7.0 million tons reflect an increase of 1.6 million tons from the nine months ended September 30, 2007, primarily as a result of the acquisition of Chaparral Steel. Additionally, average mill-finished steel selling prices increased 39.4% over the level in this same period in 2007.
Metal spread was $530 per ton, an increase of $121 per ton from the same period in the prior year. Partially offsetting this increase in metal spread has been a significant cost increase in alloys, energy and other raw material consumables used in production.
EBITDA was $1.5 billion compared to $735.1 million for the nine months ended September 30, 2007.
Other Highlights— On July 14, 2008, the company acquired substantially all of the assets of Hearon Steel Co., a rebar fabricator and epoxy coater with locations in Muskogee, Tulsa and Oklahoma City, Okla. On October 27, 2008, the company acquired Metro Recycling, a scrap processor with two locations in Guelph and one in Mississauga, Ont., Canada. On October 31, 2008, the company acquired the operating assets of Sand Springs Metal Processors, a scrap processor located in Sand Springs, Oklahoma.
The company recorded a $7.0 million charge in the quarter and $46.7 million through the first nine months to write down the carrying value of previously purchased investments (comprising variable rate debt obligations, known as auction rate securities) to their fair market value of $47.2 million. The original
investment in these securities was approximately $104.2 million. The eps impact of this writedown was approximately $0.02 per share for the quarter and $0.11 per share for the nine months. The effective tax rate was unfavorably impacted by this writedown as no associated tax benefit was recorded for this item.
Included in selling and administrative expense for the three and nine months ended September 30, 2008 is a non-cash pretax expense reversal of $9.8 million and a non-cash pretax expense of $6.0 million, respectively,
to mark-to-market outstanding stock appreciation rights and expenses associated with other executive compensation agreements compared to a non-cash pretax expense reversal of $2.2 million and a non-cash pretax expense of $16.0 million, respectively for the three and nine months ended September 30, 2007.
On November 4, 2008, the Board of Directors approved a quarterly cash dividend of $0.02 (two US$ cents) per common share, payable December 8, 2008 to shareholders of record at the close of business on November 20,
2008.
CEO Comments—"The results from the third quarter of 2008 represent our fourth successive quarter in which we have delivered increased net earnings to our shareholders from our balanced long product portfolio of rebar, merchant, structural and wire rod products,” commented Ameristeel President and CEO Mario Longhi. “Our recent acquisitions further strengthened both our downstream rebar fabrication business, which represents an outlet for a significant portion of our mill rebar production, and our upstream raw materials scrap procurement group, which has increased our captive scrap sourcing to approximately 40%. We will use our proven methodologies to integrate these operations into our existing business, in an effort to capture the synergies that these opportunities present.
Looking forward, Longhi said, “We expect shipment volume in the fourth quarter to be reduced from the levels of the third quarter. As we enter this period of economic uncertainty we will remain focused on driving productivity and cost improvement initiatives as we have done over the past several years. Our balance sheet is strong with good liquidity and with no significant scheduled debt repayments until 2011. With decreasing scrap costs and shipment volumes, we anticipate a significant reduction in the investment of working capital as we match production to customer demand, which should further enhance our liquidity position in the fourth quarter."
Gerdau Ameristeel is the second largest minimill steel producer in North America with annual manufacturing capacity of approximately 12 million tons of mill finished steel products. Through its vertically integrated network of 19 mini-mills (including one 50% owned joint venture minimill), 23 scrap recycling facilities and 66 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The company's products are generally sold to steel service centers, steel producers, or directly to original equipment manufacturers for use in a variety of industries. Gerdau Ameristeel's majority shareholder is the Gerdau Group, a 100+ year old steel company, the largest producer of long steel products in the Americas and the world leader in specialty long steel for the automotive industry.