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    Gerdau SA (GGB)

    Q1 2025 Earnings Summary

    Reported on Apr 30, 2025 (Before Market Open)
    Pre-Earnings Price$2.71Last close (Apr 28, 2025)
    Post-Earnings Price$2.66Open (Apr 29, 2025)
    Price Change
    $-0.05(-1.85%)
    • Incremental EBITDA Growth: The company is ramping up its hot-rolled coil mill—expecting an additional 150,000 to 200,000 tonnes of production in 2025—and progressing on its mining project at Miguel Burnier, which positions it to boost EBITDA and reduce third‐party purchases.
    • Robust U.S. Demand: The U.S. market shows strong demand with an order backlog exceeding 70 days, driven by higher volumes and an improving mix of higher value-added products. This suggests continued growth potential in North America.
    • Attractive Capital Allocation: The management is accelerating its share buyback program at prices near current levels relative to a book value of around BRL 15 per share in PPE, signaling that shares may be undervalued and that the company is committed to returning value to shareholders.
    • U.S. demand uncertainty: The elevated backlog in North America may reflect temporary "panic buying" rather than genuine robust demand, exposing GGB to margin pressure if an economic slowdown materializes in the U.S. market.
    • Domestic import competition: Increasing penetration of imported steel—evidenced by a 22% rate in recent months—raises competitive pressures, particularly in the long steel segment, which may depress pricing and margins in GGB’s home market.
    • Lack of decisive trade defense measures: Uncertainty regarding effective government interventions leaves the domestic steel market exposed to undercut imports, further jeopardizing profitability and market share.
    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    CapEx Guidance

    FY 2025

    BRL 6 billion

    BRL 6 billion

    no change

    Hot-Rolled Coil Production Guidance

    FY 2025

    no prior guidance

    Additional production of 250,000 tonnes annually; for FY 2025, production started in March with expected increases between 150,000 to 200,000 tonnes

    no prior guidance

    Mining Project Timeline

    FY 2025

    no prior guidance

    Expected completion and operation of the Miguel Burnier mining project by December 2025

    no prior guidance

    Working Capital Guidance

    FY 2025

    no prior guidance

    Working capital levels expected to normalize throughout FY 2025, with potential cash consumption due to higher prices in North America

    no prior guidance

    Free Cash Flow Outlook

    FY 2025

    no prior guidance

    Cash flow disbursements related to CapEx expected to average BRL 1.5 billion per quarter for FY 2025

    no prior guidance

    North America Market Outlook

    FY 2025

    no prior guidance

    A healthy market outlook is anticipated in North America, particularly in nonresidential construction, despite caution over uncertainties

    no prior guidance

    Brazil Market Outlook

    FY 2025

    no prior guidance

    Caution expressed about steel-consuming sectors in Brazil due to high interest rates, with an annual review of the trade defense system expected

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    U.S. Demand and North American Market Recovery

    Q4 2024 discussion centered on a recovering U.S. backlog driven by improved demand fundamentals and new trade defense measures (e.g., the reinstated Section 232 measures and 25% tariffs).

    Q1 2025 highlights include increased volumes, an order backlog exceeding 70 days, robust product mix performance, and optimism regarding a “protected niche” in the U.S. market.

    More solid and confirmed recovery with robust order book and clearer positive market signals.

    Production Capacity Expansion Initiatives

    Q4 2024 detailed the addition of a hot coil milling capacity in Ouro Branco expected to start in Q1 2025, mining investments to boost competitiveness, and North America expansion at the Midlothian plant.

    Q1 2025 reported the ramp-up of the new hot-rolled coil mill in Ouro Branco and expanded mining efforts at Miguel Burnier, emphasizing improvements in productivity and cost reduction rather than overall volume increase.

    Consistent progression with a tactical shift toward productivity and efficiency.

    Mining Project Development for EBITDA Growth

    Q4 2024 mentioned mining investments to enhance cost competitiveness and support a more favorable cost structure but without a specific focus on EBITDA growth.

    Q1 2025 provided detailed updates on the Miguel Burnier mining project—including a forecast of BRL 1.4 billion in additional EBITDA and completion by December 2025—underscoring its strategic role in boosting future profitability.

    New emphasis on linking mining expansion directly to noteworthy EBITDA growth.

    Trade Defense Measures and Import Competition Dynamics

    Q4 2024 focused on the impact of high import penetration in Brazil (almost 20%) and discussed both U.S. trade defense measures (25% tariffs) and the shortcomings of Brazil’s quota system, with calls for tougher measures.

    Q1 2025 deepened the discussion by noting that imported steel penetration in Brazil reached 22%, detailing specific loopholes (e.g., ZPEs, bilateral agreements, tax deductions) and proposing concrete steps to tighten defenses.

    An intensified and more critical view of domestic trade defense, with rising import challenges.

    Capital Allocation Strategy (Share Buybacks)

    Q4 2024 reaffirmed the commitment to return value through buybacks—completing 3.4% repurchase and setting up a new program to buy another 3.2% of shares.

    Q1 2025 described an accelerated share buyback program, with 44% of the current buyback program executed (representing roughly 1.4% of outstanding shares) and a clear preference for buybacks over dividends amid discounted share prices.

    Enhanced emphasis on share buybacks, signaling a more aggressive capital return strategy.

    Strategic Investments in Higher Value-Added Products and Special Steels

    Q4 2024 highlighted investments in special steel segments in North America and Brazil, new projects like the hot coil rolled strip mill at Ouro Branco, and incremental EBITDA contributions expected from these initiatives.

    Q1 2025 reinforced the focus on expanding high value-added product lines with the inauguration of the expanded hot-rolled coil capacity and modernization investments in North America to achieve higher margins.

    A consistent strategic focus evolving towards greater value addition and margin improvement.

    Rebar Segment Profitability Challenges in Brazil

    Q4 2024 painted a picture of complex market dynamics for rebar—with pricing pressures, increased competition, and a strategic shift away from rebar capacity expansion in favor of other products.

    Q1 2025 continued to underscore the struggles in the rebar segment with mounting price pressure, intensified competition from imports, and efforts to reduce rebar exposure in the product mix.

    Persistent and unresolved challenges, with comparable issues highlighted in both periods.

    Macroeconomic and Cost Pressures in Brazilian Operations

    Q4 2024 emphasized cost pressures from inflation and a 20% import penetration rate, along with raw material cost escalations due to exchange rate shifts and high interest rates impacting domestic demand.

    Q1 2025 noted similar pressures—with the imported steel issue rising to 22%, continued high interest rates affecting key sectors, and additional cost impacts from ramping up new production capacity.

    A slight intensification of cost and macroeconomic pressures, reinforcing earlier concerns.

    1. Share Buyback
      Q: Is share repurchase program active?
      A: Management is aggressively buying back shares at prices close to current levels to return value to shareholders and optimize capital allocation, reaffirming their commitment to enhanced shareholder returns.

    2. CapEx Cash Flow
      Q: How will cash versus managerial CapEx differ?
      A: Management explained that the difference arises from delayed payments and supplier terms, expecting a more linear cash disbursement over the year which will improve free cash flow visibility.

    3. US Demand
      Q: Is US steel demand real or panic buying?
      A: The team sees solid, structurally‐protected US demand—especially for high-value products—which is underscored by robust order backlogs and positive outlook in nonresidential construction.

    4. Margin Outlook
      Q: What margins are expected long term?
      A: They project a convergence toward mid-teen EBITDA margins, around 15%, driven by investments and cost reductions that will gradually align performance across geographies.

    5. Domestic Policy
      Q: How flexible is the approach to Mexico and other projects?
      A: Management is reviewing previously approved projects, including the canceled Mexico investment, and remains cautious given the uncertain policy environment to ensure that capital is efficiently deployed.

    6. Brazil Market Dynamics
      Q: What’s the impact of new rolling mill ramp-up?
      A: The ramp-up is expected to offset third-party purchases, enhance local production volumes, and gradually neutralize price pressures from imports, while rebalancing the mix away from traditional rebars.

    7. EBITDA Ramp-Up
      Q: When will new HRC and mining projects boost EBITDA?
      A: Incremental HRC capacity should add 150,000–200,000 tonnes this year, with mining investments set to deliver top-line benefits by late 2025 and into 2026, supporting a noticeable boost in EBITDA over the midterm.

    8. Inventory & Leverage
      Q: Are inventory levels and leverage a concern?
      A: They reported elevated US order backlogs and maintained solid leverage metrics, with net debt levels well within policy, suggesting that both inventory management and debt remain under careful control.