Gerdau Ameristeel Corp. reported net income of $133.5 million on net sales of $1.3 billion for the three months ended March 31, 2007.
First Quarter Results—The $133.5 million net income ($0.44 per share fully diluted) compares to net income of $88.8 million ($0.29 per share fully diluted) for the three months ended March 31, 2006. Net sales, $1.3 billion, compare to net sales of $1.1 billion for the three months ended March 31, 2006. EBITDA was $244.8 million, which compares to EBITDA of $173.4 million for the three months ended March 31, 2006.
Selling and administrative expense included an $8.8-million pretax non-cash expense to mark to market outstanding stock appreciation rights and expenses associated with other executive compensation agreements compared to a non-cash pretax expense of $26.4 million for the three months ended March 31, 2006.
Excluding 50% owned joint ventures, the company shipped 1.9 million tons of finished steel, a 16.2% increase over the three months ended March 31, 2006. The company attributes the increase to the incremental tons shipped from the Sheffield Steel Corp. and Pacific Coast Steel (PCS) operations (acquired in June and November 2006) plus strong demand across most of the company's long product group.
Average mill prices increased $35 per ton (6.3%) compared to the three months ended March 31, 2006. Average fabricated steel prices increased $122 per ton (16.5%) compared to the three months ended March 31, 2006. This comparative increase in average prices was a result of the company acquiring PCS in November 2006. PCS derives a significant portion of their revenue from the installation of reinforcing steel, which results in a higher average net selling price.
Scrap raw material cost used in production this quarter increased $31 per ton (17.0%) compared to the three months ended March 31, 2006. Metal spread (the difference between mill selling prices and scrap raw material cost) increased $4 per ton (1.0%) compared to the three months ended March 31, 2006. Some of the increase in scrap costs remains in the cost of inventory, because the company maintains approximately one to two months of inventory on hand. When taking this into consideration, the cost of scrap that flowed through earnings was approximately $20 to $30 per ton less than the cost of the scrap used in production.
Mill manufacturing costs were $251 per ton, which compares to mill manufacturing costs of $245 per ton for the three months ended March 31, 2006.
Effective January 1, 2007, the company adopted Financial Accounting Standards Board ("FASB") Staff Position # AUG-AIR-1, "Accounting for Planned Major Maintenance Activities". This guidance specifically precludes the use of the previously acceptable "accrue in advance" method of accounting for these activities. In compliance with this new guidance, the company has retroactively adjusted the Condensed Consolidated Statement of Earnings for the three months ended March 31, 2006 and the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Changes in Shareholders' Equity for the year ended December 31, 2006 which has resulted in increases in net income and equity of $1.5 million and $1.3 million, respectively.
50% Owned Joint Venture Results—Results refer to the company's portion of Gallatin Steel, its 50% owned flat rolled mill joint venture with Dofasco Inc. Gerdau Ameristeel's income from joint-venture operations was $195.7 million, and the company’s share of the operating income was $18.1 million. Based on 2.1 million tons of finished steel shipped, the composite operating income was $102 per ton. For the year-ago first quarter, Gerdau Ameristeel's income from operations was $118.0 million, and its share of the operating income was $29.4 million. Based on 1.8 million tons of finished steel shipped, the composite operating income was $81 per ton for the year-ago first quarter.
CEO Comments—"We are pleased with the strong financial results in the first quarter,” said Mario Longhi, President and CEO of Gerdau Ameristeel. “With the rapidly escalating steel prices, shipments of finished steel products were strong in the March quarter as customers anticipated future demand and ordered steel before price escalation. This will create certain challenges in the June quarter as most customer inventory levels are above average. Despite this short-term volatility, the fundamentals of our businesses remain sound and we are still cautiously optimistic for the remainder of 2007.
“During the quarter we successfully concluded three of our outstanding labor agreements with our employees at Wilton, Iowa, St. Paul, Minn., and Beaumont, Texas,” continued Longhi. “In addition, on April 2nd, we announced that we reached a new three-year agreement with our workforce at Whitby, Ont., whose contract expired on February 27 of this year. We believe that the framework of these agreements will provide us with the ability to pursue higher levels of competitiveness at these locations.”
The Board of Directors approved a quarterly dividend of $0.02 (two US$ cents) per common share, payable June 1, 2007 to shareholders of record at the close of business on May 16, 2007.
Gerdau Ameristeel is the second-largest minimill steel producer in North America with annual manufacturing capacity of over 9.0 million tons of mill finished steel products. Through its vertically integrated network of 17 minimills (including one 50%-owned joint venture minimill), 17 scrap recycling facilities, and 51 downstream operations (including seven joint venture fabrication facilities), Gerdau Ameristeel serves customers throughout North America. The company's products are generally sold to steel service centers or steel fabricators, or are sold directly to original equipment manufacturers for use in a variety of industries.