Companhia Siderurgica Nacional (ADR) (NYSE:SID): Weaker Revenues And Bearish Industry Outlook

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Dallas, Texas 12/11/2014 (FINANCIALSTRENDS) – Companhia Siderurgica Nacional (ADR) (NYSE:SID), a Brazilian steel maker, hit a new 52-week bottom of $1.81 before the session closed. The stock has plunged nearly 70% from its 52-week high and a year ago price. Overall pressure in the industry is also reflecting in the investor sentiments, which continued to push this stock down. The company recently posted lower-than-expected 3Q14 revenues and also witnessed analyst downgrades.

More recently, investment analysts at TheStreet downgraded the stock to ‘Sell’ from ‘Hold’ rating. The rating update was given in consideration with the company’s disappointing return on equity, largely attributable to weak operating cash flow, poor profit margins and net income. In addition, the analysts also pointed high debt management risk given the company’s higher debt-to-equity ratio of 4.88.

Quarterly Performance

Companhia Siderurgica Nacional (ADR) (NYSE:SID) posted 3Q14 net loss of $110.3 million on revenues of $1,710.6 million. This compares with 3Q13 earnings of $207 million. Revenues decreased nearly 17% from the prior year period, mainly due to lower revenues from mining operations. The company reported 12.8% and 44.5% YoY decline in its Steel and Mining revenues, respectively.

Revenues from domestic markets accounted for nearly 64% of total revenues. Steel and Mining revenues accounted for 64.9% and 21.3% of net revenues, respectively. Gross margin declined to 25% during 3Q14 from 30% in 3Q13.

The company reported capital expenditures of $224.9 million during 3Q14 and ended the quarter with cash and cash equivalents of $3,691.9 million.

Industry Outlook

Companhia Siderurgica Nacional (ADR) (NYSE:SID) reported 19% YoY improvement in its iron ore sales volume to a record of 21.3 million tons during the first nine months of 2014. However, continuing decline in iron-ore prices is pressuring the earnings growth of global steelmakers. The prices are almost 48% down this year, hitting lowest levels in more than five years.

Industry experts believe this decline to continue given the continued growth in production output. Moreover, weakness in Chinese economy is also a cause of concern as it buys 67 percent of seaborne supply.

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