What Gerdau (GGB) Said on Its Q3 Earnings Call

Key Points

• Strong third-quarter performance: Gerdau reported BRL 3.8 billion in EBITDA, a 20.2% margin—the highest since Q2 2023—and BRL 1.4 billion in free cash flow. North America led results with a four-year-high 27.7% EBITDA margin.
• North American growth remains a priority: Demand from data centers, renewable energy, infrastructure and other investment markets is supporting margins. The Midlothian, Texas capacity expansion is expected to contribute fully during 2027, while management is avoiding major acquisitions and greenfield projects.
• Brazil faces ongoing pressure, while capital remains disciplined: Imports and domestic oversupply continue to weigh on Brazilian profitability, with productivity and cost-improvement plans to be detailed at the December 4 Investor Day. Gerdau lowered expected 2026 capital spending to about BRL 4 billion, maintained low leverage at 0.58 times net debt to EBITDA and plans shareholder distributions.

Gerdau NYSE: GGB reported third-quarter 2026 EBITDA of BRL 3.8 billion and an EBITDA margin of 20.2%, its highest margin since the second quarter of 2023, as strong North American demand and operating performance offset continued pressure in Brazil.

Adjusted net income reached BRL 1.5 billion, while earnings per share rose to BRL 0.79 from BRL 0.74 in the prior quarter, CFO Rafael Japur said. The company generated BRL 1.4 billion in free cash flow during the quarter, six times the second-quarter amount. For the first nine months of 2026, free cash flow totaled BRL 1.7 billion, compared with a BRL 1 billion cash outflow in the corresponding 2025 period.

Japur attributed the year-over-year improvement principally to higher EBITDA in North America, reduced working-capital needs and lower investment spending compared with recent years.

North America Drives Results

CEO Gustavo Werneck said North American operations produced an EBITDA margin of 27.7%, the region’s highest in four years. While the third quarter typically experiences seasonal slowing, he said steel demand remained elevated, supported by order backlogs in renewable energy and data center-related markets.

Management expects demand to remain supported by several investment areas, including data centers, power transmission, renewable energy, semiconductor-related manufacturing, infrastructure and naval construction. Werneck said the company sees a balanced supply-and-demand environment in the U.S. market and believes current margin levels can be maintained.

Gerdau is expanding capacity at its Midlothian, Texas facility. Japur said the company remains in a maintenance shutdown at the site while also increasing melting capacity. The project will ramp through the fourth quarter, with the full productive-capacity addition expected to be visible during 2027, assuming no operational problems.

The company does not currently plan a North American spin-off, major acquisition or greenfield steel plant, Japur said. Instead, management described its strategy as focused on selective organic investments, including capacity expansions and scrap-processing capabilities.

Management said potential trade arrangements could affect regional margins differently. Japur said an agreement between the U.S. and Canada would likely be positive for Gerdau by reducing transaction costs for specialized mills, while a U.S.-Mexico agreement could modestly pressure margins given potential competition from Deacero. However, he said Deacero’s ramp-up in beams is expected to be gradual because of product complexity.

Brazil Remains Under Import Pressure

In Brazil, Gerdau reported a modest recovery in results but said steel imports and domestic oversupply continued to limit profitability. Werneck said the company is developing a plan to improve productivity and profitability in the country and will provide more detail at its Dec. 4 Investor Day.

He said the company cannot rely solely on external improvements such as trade protections and must pursue actions within its control. Management cited cost reductions, portfolio changes, asset productivity initiatives and a more selective approach to capital spending as priorities.

Werneck said he expects continued dialogue with the Brazilian government on trade-defense mechanisms following President Lula’s re-election. He said the company supports measures that provide balanced competitive conditions for domestic producers, while also pointing to the importance of tax reform, a more competitive natural-gas market and stable access to renewable and low-emissions energy.

Gerdau has begun operating a recycling center in Pindamonhangaba, São Paulo, and is conducting final integrated tests for expanded iron ore capacity at its Miguel Burnier mine in Ouro Preto, Minas Gerais. The mine expansion is scheduled to begin operations in the fourth quarter.

Japur said the Miguel Burnier ramp-up will extend through the fourth quarter and into 2027, partly because wetter seasonal conditions could slow progress. He said the company expects an important part of the project’s benefit to be realized in 2027, potentially near the BRL 400 million order of magnitude previously discussed.

Over the longer term, Gerdau sees mining as a potential growth avenue because of its industrial assets, stake in MRS Logística and mining rights in Minas Gerais. However, Japur said the company has no tangible plans for additional mining projects at present, with the immediate focus on Miguel Burnier.

Capital Returns, Balance Sheet and Spending

Gerdau S.A. plans to pay BRL 0.34 per share in dividends, while Metalúrgica Gerdau plans to pay BRL 0.16 per share. Combined dividends and share repurchases during 2026 have returned more than BRL 1.85 billion to shareholders, Japur said.

The company ended the quarter with net debt to EBITDA of 0.58 times. During the quarter, it renewed its global revolving credit facility for five additional years and increased available capacity by 29% to $1.125 billion. S&P revised Gerdau’s outlook to positive on Oct. 22 while maintaining its BBB rating, according to Japur.

Management said capital expenditures are now expected to run closer to BRL 4 billion than the BRL 4.5 billion to BRL 4.7 billion previously contemplated. Japur said the lower level reflects more selective project approvals and reduced maintenance spending at hibernated units rather than simply delayed spending.

While Gerdau may review debt-related policies over time, Japur said leverage is not currently a concern. He said management’s principal focus is improving the profitability and competitiveness of the Brazilian business while continuing to invest in projects expected to create long-term value.

About Gerdau (NYSE:GGB)

Gerdau SA is a Brazil-based steel producer with operations across the Americas. The company manufactures and sells steel products for the construction, industrial, automotive, agricultural and infrastructure markets.

Its product portfolio includes long steel products such as rebar, wire rod, merchant bars and structural shapes, as well as special steel used in automotive and industrial applications. Gerdau also produces flat steel and semi-finished products, including billets and slabs, and operates steel mills, scrap-processing facilities and related distribution networks.

Founded in 1901, Gerdau has grown from a regional Brazilian steelmaker into an international producer serving customers in Brazil, North America and other parts of Latin America.

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