Gerdau SA Q3 FY2024 earnings call

Key Points:

• Injury and accident frequency rate was 1.58, the best in 123 years, emphasizing commitment to safety.
• Adjusted EBITDA of BRL3 billion driven by cost reduction initiatives and asset optimization in Brazil.
• Shipments grew QoQ and YoY despite global steel oversupply.
• In Brazil, domestic steel demand increased, but impacted by excessive imports; trade defense measures not effective.
• Cash generation: Net income BRL1.432 billion, free cash flow BRL3 billion, leverage at 0.32 times net debt over EBITDA.
• Dividend payout and share buyback: Year-to-date payout on net income 55%, 57% of share buyback program executed, investing over BRL700 million.
• Cost reduction initiatives: BRL210 million savings in Brazil in Q3, aiming for BRL1.5 billion in savings by end of 2025 vs 2023 base.

In the third quarter of 2024, Gerdau's adjusted EBITDA was BRL3 billion. In Brazil, BRL210 million in cost savings were captured during the quarter. Shipments grew both quarter-on-quarter and year-on-year despite global steel oversupply. In Brazil, domestic steel demand increased, but shipments were impacted by excessive steel imports. In North America, results were temporarily impacted by election-related demand apprehension. Revenue contribution details: Adjusted EBITDA of BRL3 billion was a key figure, with cost reductions in Brazil being a significant driver.

Forward-Looking:

• Brazil: Positive outlook for steel demand, especially from construction industry with GDP growth expected.
• North America: Temporary impact on shipments and prices due to election-related economic slowdown, expected rebound in first half of 2025.
• Q4 free cash flow expected to benefit from working capital release, but Q4 typically has maintenance stoppages and CapEx disbursements.

Risks:

• Steel imports into Brazil not effectively addressed by trade measures, continuing to impact shipments.
• Seasonality in North America affecting volumes and margins.
• Maintenance downtime costs impacting competitiveness.

Q: Daniel Sasson asks about U.S. BD impact of election and capital allocation.

A: Gustavo Werneck and Rafael Japur answer about cost reductions, election impact on North America, and capital allocation including share buyback and CapEx.

Q: Unidentified Participant asks about share buyback pace and Brazil BD margin.

A: Rafael Japur discusses share buyback progress, dividend payout, and Brazil BD margin expectations, mentioning seasonality impacts.

Q: Marcio Farid asks about spreads in U.S. and Brazil imports.

A: Gustavo Werneck and Rafael Japur address spread dynamics in U.S. structural beams and merchant bars, and Brazil's import situation from China and Egypt.

Q: Rafael Barcellos asks about U.S. margin trajectory and Brazilian market entry of Egyptian rebars.

A: Rafael Japur talks about U.S. margin seasonality, impact of price moves, and Brazilian market's Egyptian rebar entry.

Q: Caio Ribeiro asks about special steels and South America margin.

A: Gustavo Werneck comments on special steels in North America and South America margin dynamics, including Argentina's economic impact.

Q: Ricardo Monegaglia asks about cash flow and U.S. margin deterioration.

A: Rafael Japur answers on working capital release in Q4 and U.S. margin factors.

Q: Unidentified Participant asks about North America inventory adjustment and Brazil capacity increase.

A: Gustavo Werneck discusses inventory valuation impact and Brazil capacity concerns.

Q: Unidentified Participant asks about cash balance and South America outlook.

A: Gustavo Werneck talks about cash balance comfort level and South America's recovery outlook.

Q: Igor Guedes asks about Brazil BD exports and exchange rate impact.

A: Gustavo Werneck addresses export mix expectations and exchange rate impact on Brazil BD costs.