Usiminas 4th-Quarter Profit Falls 43% as Costs Rise

Usinas Siderurgicas de Minas Gerais SA, the second-largest Brazilian steelmaker, said fourth-quarter profit fell 43 percent as costs surged and income from minority stakes plunged.

Net income fell to 752.2 million reais ($353.6 million), or 3.43 reais a share, from a record 1.32 billion reais, or 6.04 reais, a year earlier, Belo Horizonte-based Usiminas said today in a statement. Sales rose 10 percent to 3.28 billion reais.

The year-earlier results included a 750 million-real gain in equity income from Usiminas's 14.25 percent stake in Ternium, a steelmaker that operates in Argentina, Mexico and Venezuela. Operating costs rose 56 percent.

"The important thing to remember about the decline is that it's compared to a very high and non-recurring base last year," said Rodrigo Ferraz, a steel analyst at Banco Brascan SA in Rio de Janeiro. Ferraz expected profit of 760 million reais. "I'm more interested in operations and cash flow, which were very satisfactory."

Usiminas preferred shares, the company's most-traded class of stock, rose 4.07 reais, or 5.1 percent, to 83.42 reais in Sao Paulo trading at 11:33 a.m. New York time. The shares have gained 17 percent in the past 12 months.

An increase in labor costs, higher taxes and spending on contractors helped drive up overall operating expenses to 264.3 million reais, compared with 169.5 million reais a year earlier. Sales in the fourth quarter of 2005 totaled 2.97 billion reais.

Usiminas' earnings before interest, taxes, amortization and depreciation, or Ebitda, a measure of the company's ability to generate cash from operations, rose 30 percent to 1.19 billion reais, or 36 percent of net sales, compared with 910 million reais, or 31 percent of sales, a year earlier.

Operating profit rose 22 percent to 907 million reais from 743 million in the fourth quarter of 2006.

"This shows that the company is really doing a good job of improving its business," said Ferraz, who has a "buy" recommendation on the stock and expected Ebitda of 1.16 billion reais and net sales of 3.13 billion reais. "Going forward I think we can see even better results in 2007."

(Published by Bloomberg, March 6, 2007)