Brazilian steel maker Companhia Siderurgica Nacional SID or CSN reported net loss of R$614.6 million (US$200.2 million) for second-quarter 2015. The bottom line compared unfavorably with net earnings of R$19 million (US$6.2 million) in the year-ago quarter and R$391.8 million (US$137 million) in the preceding quarter.

Companhia Siderurgica Nacional's loss per share came in at R$0.44 or approximately 14 cents per American Depository Receipt (“ADR”).   

Revenues

Companhia Siderurgica Nacional generated net revenue of R$3,687.1 million (US$1,201 million) in the quarter, down roughly 9% year over year and 8.1% sequentially. The year-over-year fall was due to sales decline in Steel, Mining and Energy segments, partially offset by improvement in Logistics and Cement businesses.

Roughly 53.6% of net revenue was generated from domestic markets, while the rest was sourced from Companhia Siderurgica Nacional's international operations.

Crude steel production stood flat sequentially at 1.19 million tons; while production of rolled steel inched up 1% to 1 million tons. Steel sales volume edged down 0.2% year over year to roughly 1.3 million tons, of which domestic sales accounted for 60%, overseas subsidiaries about 36% and direct exports around 4%. Iron ore sales were down 17% year over year to approximately 6 million tons.

Steel revenues, comprising 70.1% of net revenue, declined 2.8% year over year. Revenues from the Mining segment fell 39.1%, accounting for 17.2% of net revenue.

The Logistics segment contributed 8.2% to net revenue, up 18.3% year over year. Cement revenues increased 1.8% and represented 2.9% of net revenue. Revenues from the Energy segment, down 31% year over year, accounted for 1.6% of net revenue.

Margins

Companhia Siderurgica Nacional’s poor top-line performance led to a weak margin profile in the quarter. Cost of sales grew 3.7% year over year, representing 77% of net revenue versus 68% in the year-ago quarter. Gross margin declined 900 basis points (bps) to 23%.

As a percentage of net revenue, selling expenses increased 270 bps year over year, while general and administrative expenses edged down 10 bps over the same time frame.

Companhia Siderurgica Nacional's adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) decreased 39% year over year to R$801 million (US$260.9 million), with a margin of 21.7% compared with 32.2% in the prior quarter. Net financial results included expense of R$771.7 million (US$251.4 million), down 5.3% year over year.

Balance Sheet & Cash Flow

Exiting second-quarter 2015, Companhia Siderurgica Nacional had cash and cash equivalents of R$7,844.4 million (US$2,498.2 million), down 13.5% sequentially. Borrowings, financing and debentures (net of current portion) declined 1.4% sequentially to R$28,968.7 million (US$9,225.7 million).

In addition, Companhia Siderurgica Nacional used cash of R$640.7 million (US$208.7 million) for its operating activities compared with cash generation of R$1,642 million (US$574.1 million) in the prior quarter. Capital spending totaled R$562.7 million (US$183.3 million), up 66.4% sequentially.

With a market capitalization of $1.4 billion, Companhia Siderurgica Nacional presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Innospec Inc. IOSP, Gruma S.A.B. de CV GMK and Gibraltar Industries, Inc. ROCK. While both Innospec and Gruma sport a Zacks Rank #1 (Strong Buy), Gibraltar Industries carries a Zacks Rank #2 (Buy).

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