Gerdau (GGB) Q1 2026 earnings review
North America Carries the Load as Brazil Struggles
Gerdau's 1Q26 results showcase a tale of two entirely different markets. Consolidated Adjusted EBITDA surged 23% YoY to R$2.96B, driven completely by North America, which delivered an 88% YoY EBITDA spike and now accounts for an unprecedented 75% of the company's total profits. Meanwhile, the home market of Brazil remains severely depressed, with EBITDA plummeting 47% YoY as cheap imported steel (penetration hitting 34% in flat steel) eroded margins. Free cash flow was barely positive at R$16M due to a R$980M working capital build, but rock-solid leverage at 0.74x Net Debt/EBITDA allows the company to continue aggressive share buybacks.
🐂 Bull Case
The U.S. and Canadian operations are accelerating massively. With order backlogs above 90 days and a favorable pricing environment, NA EBITDA margins expanded by 10.4 p.p. YoY to reach 24.1%.
Management continues to capitalize on depressed share prices. Gerdau already executed 21% of its 2026 Share Buyback Program (R$211M invested) in 1Q26 and declared R$354M in dividends.
🐻 Bear Case
The structural dumping of foreign steel in Brazil shows no signs of easing. Flat steel import penetration reached an all-time high of 34% in February, pushing Brazil's EBITDA down 47% YoY.
Despite strong profit growth, Free Cash Flow decelerated sharply from R$1.41B in 4Q25 to just R$16M in 1Q26, entirely driven by inventory and receivables build in North America.
⚖️ Verdict: ⚪
Neutral. The operational excellence and protective moats in North America are highly impressive, but the structural degradation of the Brazilian domestic market caps the overall upside until meaningful trade defense measures are enacted.
Key Themes
North America's Unprecedented Profit Share
North America is accelerating rapidly and single-handedly supporting the consolidated results. While net sales rose a modest 6.6% YoY, Adjusted EBITDA soared 88.1% to R$2.25B, pushing NA's share of total EBITDA to 75% (up from roughly 50% a year ago). A resilient order backlog of over 90 days, sustained non-residential construction demand, and a favorable pricing environment driven by Section 232 tariffs allowed the segment to achieve a 24.1% margin.
Brazil Import Dynamics Remain Toxic
The macroeconomic and competitive environment in Brazil is decelerating further. The penetration of imported steel reached an all-time high of 34% for flat products in February (averaging 28.5% for the quarter). This oversupply crushed domestic shipment volumes (down 9.8% YoY) and pricing, sending Brazil's Adjusted EBITDA down 47.3% YoY to R$578M. Management's ongoing cost controls are currently serving only as defensive measures against structural dumping.
Working Capital Drag Erases Cash Generation
While the consolidated EBITDA grew by 23.2% YoY, the cash conversion narrative reversed. Free Cash Flow collapsed to a mere R$16M (down from R$1.41B in 4Q25). This was directly caused by a massive R$980M working capital consumption line item, largely tied to inventory growth and accounts receivable increases in the booming North American segment. This cash absorption contradicts the otherwise highly profitable quarter.
Energy Predictability and Decarbonization Execution
Gerdau is securing structural cost advantages through renewable energy. The inauguration of the Barro Alto Solar Complex in Goiás (111 MWm capacity) will supply 13% of the company's electricity consumption in Brazil. This mitigates exposure to volatile grid prices and pairs directly with their commercial launch of 'Gerdau NewEco'—a lower-carbon steel product line designed to capture premium demand from customers targeting supply chain decarbonization.
Strategic Pivot in Capital Allocation
Management continues to dynamically shift capital away from the struggling Brazilian market and into shareholder pockets. The 2026 Share Buyback Program is already 21% complete, repurchasing 11.7 million shares for R$211M. Combined with a R$354M dividend declaration, Gerdau is proving that as long as leverage stays low (currently 0.74x), they will aggressively shrink the float.
South America Hit by Poor Mix and Pricing
Performance in the broader South American segment is stable on the top line but deteriorating in quality. While crude steel production rose 15.7% YoY driven by Peru, the segment's Adjusted EBITDA fell 1.5% YoY to R$186M. This margin compression was driven by a less favorable sales mix heavily weighted toward exports in Argentina, combined with local oversupply and price pressures.
Other KPIs
Stable. Despite the heavy working capital drag in 1Q26, leverage remained flat (0.76x in 4Q25), sitting well below the company's long-term internal limit of 1.5x. This robust balance sheet ensures no liquidity concerns.
Stable and strictly controlled. SG&A decreased 3.9% YoY from R$543M, keeping the SG&A-to-sales ratio completely flat at 3.1%. This reflects rigorous fixed-cost discipline mitigating top-line weakness.
Guidance
Decelerating. Management reaffirmed the 2026 capital expenditure reduction down to R$4.7B, compared to the R$6.1B spent in 2025. 1Q26 execution was R$1.1B (23% of budget), putting them perfectly on track. This intentional step-down reflects a strategic pivot away from capacity expansion in Brazil due to the hostile, import-heavy competitive landscape.
Key Questions
Capacity Discipline in Brazil
With Brazilian flat steel import penetration hitting an unsustainable 34% in February, at what threshold does management transition from cost-cutting to aggressively hibernating additional domestic capacity?
Working Capital Normalization
Working capital consumed almost R$1 billion in cash this quarter due to the North American inventory and receivables build. Is this a permanent structural shift to support the 90+ day backlog, or do you expect this to reverse and generate cash in 2H26?
North American Margin Sustainability
North America achieved a phenomenal 24.1% EBITDA margin this quarter. How much of this is driven by structural shifts versus temporary spread widenings, and how resilient is this margin if U.S. demand normalizes?