Gerdau Q1 Earnings Call Highlights

Key Points

• North America accounted for about 75% of consolidated EBITDA as Gerdau posted its best first-quarter adjusted EBITDA in the region since 2022, driven by strong local demand (data centers, infrastructure, solar) and an order backlog above historical averages.
• Brazilian results remain pressured by imports—imports rose 4.2% YoY with a 22.7% penetration rate—but management noted a higher Q/Q EBITDA margin from cost discipline, signs of gradual domestic demand recovery, and potential relief from ongoing anti-dumping investigations in H2.
• Financial position and returns were solid, with net debt/EBITDA of 0.74x, Q1 free cash flow of BRL 16 billion, dividend distributions (BRL 0.18 and BRL 0.08 per share) and a new buyback program for up to 10 million preferred shares (~BRL 100 million).

Gerdau NYSE: GGB reported first-quarter 2026 consolidated net income of BRL 1 billion, with management emphasizing a strong contribution from its North American operations while Brazilian results continued to face pressure from imports and softer demand in certain end markets.

North America drives consolidated profitability

CEO Gustavo Werneck said the company posted its best first-quarter adjusted EBITDA in North America since 2022, and that the region accounted for 75% of consolidated EBITDA. He attributed the performance to “continued strong local steel demand” and the “sound operating performance” of the company’s assets, citing consumption tied to data centers, infrastructure, and solar power.

During the Q&A, Werneck said demand in North America remained “stable at high levels” and noted an order backlog “above historical averages.” He also pointed to industry dynamics and policy as supportive, including robust U.S. trade defense mechanisms and ongoing monitoring of potential changes related to Section 232 and the scheduled formal review of the U.S.-Mexico-Canada Agreement (USMCA) in the second half of the year.

Werneck added that Gerdau’s internal execution in the region has improved since a turnaround plan initiated in 2018, describing the North American footprint as “very lean,” with mills operating well and limited maintenance shutdowns.

Brazil: import pressure persists amid signs of demand recovery

In Brazil, management said the domestic market remained under pressure due to steel imports. Werneck said import volume rose 4.2% in the first quarter compared with the same period a year earlier, reaching a penetration rate of 22.7%. He said the company continues to monitor anti-dumping investigations for long and flat products, which he expects to be updated in coming months.

Despite the backdrop, CFO Rafael Japur said Gerdau’s Brazilian operations delivered a higher EBITDA margin than the prior quarter, which he attributed largely to cost discipline. Consolidated EBITDA totaled BRL 3 billion in the quarter, with an EBITDA margin of “almost 18%,” according to Japur.

When asked about Brazilian demand, Japur said apparent consumption of long steel in Brazil declined 6% year-over-year, partially due to weakness in special steels tied to heavy vehicle production early in the year. He said January and February were weak months for heavy vehicles, which impacted Gerdau’s mix and realized revenue, though he noted a rebound in March production data. Japur said if that rebound continues, it could support higher special steel shipments and “more constructive margins” in Brazil.

Werneck said the company sees “signs of a gradual recovery in domestic demand,” particularly in construction and infrastructure, following seasonal weakness at the start of the year, though he reiterated that import inflows remain excessive.

Trade defenses and pricing: focus on “fair trade”

Executives repeatedly returned to trade defense measures in Brazil. Werneck said the company expects anti-dumping developments to potentially “bring a new reality to the sector starting the third quarter of this year,” while also emphasizing continued internal efforts to improve costs and logistics efficiency regardless of trade outcomes.

In response to questions on long products, Japur described how wire rod imports can affect the broader long steel market, arguing that significant dumping margins can push domestic producers to shift volume into other products and pressure margins across the segment. He referenced ongoing investigations involving China and Russia and said the company expects a conclusion on the wire rod dumping case in the second half of the year, with potential spillover benefits to other long products.

On pricing, Werneck said cost pressures from inputs and a “complex global situation” need to be passed through, and that the company is negotiating both with suppliers and customers. He highlighted logistics as a key lever for margin improvement in Brazil and said the company expects gradual progress rather than “radical cuts.”

Cash flow, leverage, and shareholder returns

Japur said Gerdau ended March with leverage of 0.74x net debt to EBITDA, which he described as “extremely sound” and consistent with the company’s financial policy. He also reported free cash flow of BRL 16 billion in the first quarter, noting that the period is typically cash-consuming due to working capital replenishment and maintenance shutdowns. He said the company generated BRL 1.3 billion more cash than in the same period of 2025, reflecting stronger EBITDA and reduced CapEx pace.

On capital returns, Japur said Gerdau S.A. will distribute BRL 0.18 per share in dividends, while Metalurgica Gerdau will distribute BRL 0.08 per share. He also said Metalurgica Gerdau approved a new share buyback program for up to 10 million preferred shares, which he said represented approximately BRL 100 million at current market prices.

Asked about cash flow drivers, Japur said tax payments were influenced by profit concentration in the U.S. operation and withholding taxes related to distributions made more heavily at the end of last year. He said the company expects normalization through the year and projected positive free cash flow generation in the second half supported by operating results, working capital, and lower CapEx than last year.

Projects and CapEx: ramp-ups, delays, and discipline

Management reiterated its focus on projects intended to lift competitiveness and earnings power. Japur said that by the end of 2026 Gerdau expects to complete three significant projects: the mining expansion in Miguel Burnier, the scrap processing center in Pindamonhangaba, and the first phase of metallurgical expansion in Texas. He said the projects together “have the potential to add nearly BRL 1.5 billion” to annual EBITDA once ramp-ups are complete.

However, Japur said the Miguel Burnier mining project has not yet started operations and that it will be “hard to have all the BRL 400 million” in EBITDA contribution in 2026 that the company had referenced previously as a “soft guidance.” He said the company is recalculating expectations for this year and pursuing other initiatives to offset the shortfall, including operating efficiencies and alternative ore sourcing in Minas Gerais.

Werneck later provided more color on the delay, attributing it to productivity constraints in civil construction and electromechanical assembly, including difficulty hiring skilled labor. He also said the company intends to monetize additional mining rights over time, but that next steps will be evaluated after the initial 5.5 million-tonne operation is running as expected.

On longer-term capital allocation, Japur said it was too early to give formal CapEx guidance for 2027, while reiterating that maintenance CapEx is expected to average close to BRL 3 billion over the next five years, with fluctuations depending on shutdown schedules. Werneck also stressed that the company does not plan to raise debt to accelerate transformation in Brazil and intends to keep leverage and CapEx dispersion at “very healthy levels.”

Executives also discussed a potential transformation of the Brazilian footprint over time, describing a shift toward concentrating production in “winning mills,” similar to actions previously taken in North America, while improving logistics and asset utilization.

About Gerdau NYSE: GGB

Gerdau SA is a Brazilian-based steel producer engaged in the manufacture and distribution of long steel products for the construction, industrial and agricultural sectors. Established in 1901, the company operates an integrated network of electric-arc furnaces and rolling mills, producing reinforcement bars, wire rod, merchant bars and structural shapes. Gerdau's product portfolio also includes specialty long steel, high-yield reinforcement, rail, beams and steel coils, as well as value-added processing services such as cutting, bending and coating.

The company has expanded its footprint beyond Brazil, with significant operations in North America, South America and a presence in select European markets.

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