May 6, 2010 / 1:10 PM / 7 years ago

UPDATE 3-Gerdau Ameristeel swings to Q1 profit; shares jump

* Q1 EPS $0.06 vs yr-ago loss $0.07/shr

* Revenue up 10 pct

* Expects demand to grow in Q2

* Shares up as much as 10 pct (Adds details, analyst comments; updates share movement)

May 6 (Reuters) - Gerdau Ameristeel Corp GNA.TO GNA.N swung to a quarterly profit, helped by cost controls and a rise in shipment volumes, and forecast an improvement in demand in the second quarter, sending its shares up 10 percent.

The North American mini-mill steel producer said its customers are beginning to feel more confident in the U.S. economic recovery.

“The company is well positioned to increase penetration into new markets (such as sheet piling) in order to offset weakness in other markets (such as the structural beam market),” CIBC World Markets analyst Michael Willemse said in a note to clients.

After over four consecutive quarters of losses, the company finally posted a first-quarter profit of $25.2 million, or 6 cents a share, from a net loss of $31.5 million, or 7 cents a share, a year ago.

Operating expenses fell 10 percent to $58.3 million.

“The upside surprise appears to have been driven by better-than-expected operating cost performance at the mill level,” analyst Mark Parr of KeyBanc Capital Markets said in a note.

Revenue in the quarter rose 10 percent to $1.14 billion.

EBITDA rose to $116.7 million from $41.8 million a year ago, helped by increased shipment volumes.

Cost of scrap raw material used in production, however, rose to $266 per ton in the first quarter, from $200 per ton last year.

Analyst Willemse sees a challenging steel industry in 2010, due to a still weak U.S. non-residential construction market, weighing down on Gerdau’s earnings.

“Earnings should return to normalized levels in 2011/2012, as non-residential and infrastructure spending rebounds and as Gerdau takes advantage of a continued increase in export opportunities,” the analyst, who has a “sector outperformer” rating on the stock, said.

Shares of the Tampa, Florida-based company rose as much as 10 percent to C$7.95 in morning trade, but pared some gains to trade up 6 percent at C$7.68 on the Toronto Stock Exchange. (Reporting by Gowri Jayakumar in Bangalore; Editing by Ratul Ray Chaudhuri, Unnikrishnan Nair)

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