It is reported that Brazilian steel producer Gerdau SA has been recently upgraded from Neutral to an Outperform rating by Zacks Investment Research. The company stands well positioned over the long run to leverage the favorable outlook for the global steel market.

Gerdau posted weak third quarter results with a net income down by 7% YoY and 28.9% sequentially to BRL 609.0 million. Earnings per share were BRL 0.38 as compared with BRL 0.39 in the year ago period and below the Zacks Consensus Estimate of USD 0.28 per ADR. The bottom line results were negatively affected by higher cost of sales and operating expenses, which more than offset higher revenue in the quarter.

Net revenue was BRL 8,190.0 million, up by 20% YoY, but down by 1% sequentially. The revenue increase was primarily due to higher shipments in the quarter. Crude steel production increased 9% YoY, primarily due to strengthening demand from the automotive industry and reviving credit market. However, steel production decreased 7% sequentially, resulting from correction in the inventory levels.

Gross margins in the quarter were weak at 16% attributable to a 28% YoY and 6% sequential increase in cost of sales, driven by higher raw material costs.

Zacks Investment Research said that "Despite Gerdau's weak third quarter results, hampered primarily by higher raw material costs, we believe favorable outlook for the global steel market warrants better performance in the quarters ahead. Moreover, a positive average earnings surprise of 25.48% for the trailing four quarters is encouraging."

It added that "Thus, we upgrade the stock from Neutral to an Outperform recommendation."

(Sourced from www.zacks.com)