Gerdau SA Q3 FY2026 earnings call

• North America Strength: Recorded strong results driven by resilient demand in key markets and solid operational performance, resulting in a 27.7% EBITDA margin.
• Brazil Recovery Initiatives: Despite import pressure and oversupply, Brazil showed slight recovery due to productivity initiatives. Operations started at the Pindamonhangaba recycling center, and final tests are underway for the Miguel Bournier iron ore expansion in Ouro Preto, scheduled for Q4 start-up.
• Financial Discipline & Shareholder Returns: Generated R$ 1.4 billion in free cash flow in Q3 (six times higher than the prior quarter), leading to R$ 3.8 billion in dividends (20.2% margin). Total shareholder returns exceeded R$ 1.8 billion year-to-date through dividends and buybacks.
• Balance Sheet Health: Closed with a robust leverage indicator of 0.58x liquid debt/EBITDA. Renewed global credit line (REVOLVER) by 29% to $1.125 billion. S&P upgraded outlook to positive; Fitch had previously done so in July.
• Strategic Focus on Brazil Competitiveness: Management emphasized executing internal adjustments regardless of government policy, focusing on cost reduction, commercial defense, natural gas market competitiveness, and tax reform implementation.

The transcript does not provide specific revenue contribution percentages for distinct product segments. However, it highlights that the North America operation accounted for 76% of consolidated EBITDA (up from 75% in the previous quarter) and achieved a record-high EBITDA margin of 27.7%, the highest level in four years. In contrast, the Brazil segment experienced slight recovery amidst continued pressure from steel imports and local oversupply, with no specific margin or revenue share provided.

• Free Cash Flow: Reported R$ 1.7 billion in free cash flow for the first nine months of 2026, compared to consumption in the same period of 2025.
• CAPEX: Guidance suggests CAPEX spending is closer to R$ 4 billion rather than the previously guided R$ 4.5–4.7 billion, attributed to increased assertiveness in project approval and cost control, not just delays.
• Margin Outlook: Management expects margin stability in North America for Q4 2026, noting that while prices are favorable, lower production volumes will increase fixed cost per ton, offsetting top-line benefits.
• Long-term Investment: No formal guidance provided for 2027 CAPEX, but management indicated that current annual disbursement levels (~R$ 4 billion) may represent a reasonable baseline for future years given maintenance needs and strategic projects.

• Brazil Market Dynamics: Continued pressure from excessive steel imports and local oversupply impacting profitability and requiring structural adjustments.
• Political and Regulatory Uncertainty: Dependence on government measures for commercial defense, tax reform implementation, and natural gas market development to restore competitiveness.
• Trade Policy Shifts: Potential impact of new trade agreements, specifically distinguishing between US-Canada (positive due to reduced transaction costs) and US-Mexico (potentially negative for margins) bilateral negotiations.
• New Supply Entry: The ramp-up of D'Acero in Mexico, though management believes its primary focus will be the Mexican market, with marginal impact on North American supply-demand balance.
• Macroeconomic Factors: Correlation between Brazilian operations and long-term interest rates (NTNB); high global interest rates pose risks to investment flexibility and capital allocation.

Q: Analyst Leo Correa asked about recent comments regarding major adjustments in Brazil (capacity, exports, CapEx) and whether the divergence between North American and Brazilian performance warrants a spin-off of the US business. / A: CEO Gustavo Werneck stated that detailed adjustment plans will be unveiled at Investor Day, emphasizing that Gerdau must proactively improve competitiveness regardless of political outcomes. CFO Rafael Japur confirmed there are no current plans for a US spin-off, noting the US now represents 76% of EBITDA, a gradual shift reflecting structural changes rather than a strategic separation decision.