Gerdau (GGB) Q2 2026 earnings review
North America Bails Out Stagnant Brazil
Gerdau reported a solid quarter on the surface, with Net Income surging 70% YoY to R$ 1.47B and Adjusted EBITDA climbing 34% YoY to R$ 3.43B. However, looking under the hood reveals a starkly bifurcated business. The North American segment is accelerating rapidly, delivering record margins and single-handedly driving growth. Meanwhile, the core Brazilian segment remains stable at depressed levels, choked by record steel imports. Management's response is clear: they are slashing domestic CapEx and harvesting cash from the US to fund aggressive buybacks.
🐂 Bull Case
The North American segment is printing cash, with operating margins expanding to 25.7%. Strong macro tailwinds from infrastructure, solar, and data center demand are sustaining backlogs above 90 days.
Management is aggressively buying back shares. The R$ 1.2 billion buyback program serves as a tax-efficient way to return capital while the stock trades below intrinsic value.
🐻 Bear Case
The domestic market is overrun by cheap imports (reaching a 29.5% flat steel penetration rate recently). Brazilian EBITDA dropped 20% YoY, proving that government tariff measures have been largely ineffective.
Gerdau is increasingly reliant on the US market. If the US non-residential construction cycle peaks, there is no safety net left in South America to cushion the fall.
⚖️ Verdict: ⚪
Neutral. The North American performance is spectacular, but an investment here is essentially a bet that US infrastructure spending will outlast the ongoing structural decline of the Brazilian steel market.
Key Themes
North American Margin Expansion
Accelerating. North American Adjusted EBITDA skyrocketed 59% YoY to R$ 2.6B, making up 75% of the total group EBITDA. Margins expanded sequentially for the fourth consecutive quarter, reaching an impressive 25.7%. This strength is driven by a protected product mix (structural beams) and robust demand from data centers and reindustrialization projects.
Brazilian Import Crisis
Stable at depressed levels. Brazilian net sales declined 8.6% YoY to R$ 6.69B, and segment EBITDA fell 19.6% YoY to R$ 705M. Despite management's optimism in previous quarters regarding new 25% import tariffs on specific NCMs (Mercosur Common Nomenclature items), the financial data confirms these measures have failed to stop the bleeding. The margin has stabilized around 10.5%, far below historical norms of ~20%.
Strategic CapEx Pivot
Management is executing a harsh pivot away from its home country. Guided FY26 CapEx of R$ 4.7B is a material deceleration from the R$ 6.1B spent in FY25. This R$ 1.4B reduction is concentrated entirely in Brazil, effectively halting domestic growth investments in favor of maintaining North American competitiveness and funding share repurchases.
Miguel Burnier & Structural Cost Reductions
With top-line growth blocked in Brazil, margin recovery depends entirely on the Miguel Burnier sustainable mining project. Set for a 26H2 start-up, this R$ 3.6B investment will add 5.5M tonnes of iron ore capacity, lowering input costs for the Ouro Branco mill and potentially adding R$ 1.1B in annual EBITDA.
Cash Flow Not Covering Returns
A specific data point contradicts management's narrative of being a cash-generating machine: in H1 26, Net Cash from Operating Activities was R$ 3.04B. However, CapEx (R$ 2.23B) and Shareholder distributions (Dividends R$ 550M + Buybacks R$ 311M) totaled R$ 3.09B. Add in lease payments and debt servicing, and the company burned through R$ 774M in actual cash reserves, drawing down the balance sheet to fund the payout.
Green Steel and Energy Independence
Gerdau is leveraging specific technological and sustainable innovations to lower energy costs. The inauguration of the 111 MWm Barro Alto Solar Complex pushed the company to 42% energy self-generation in Brazil. Simultaneously, the launch of the 'Gerdau NewEco' product line capitalizes on their industry-leading low carbon footprint (0.85 tCO2e/t), offering a premium product to environmentally conscious buyers.
Other KPIs
Stable. Gross debt sits at R$ 13.8B, slightly above the company's internal long-term limit of R$ 12B, but remains highly manageable given the strong EBITDA generation in North America.
Accelerating. Up 37% YoY from R$ 149M. This segment had been an ugly spot due to high-cost exports from Argentina and hyperinflation drags, but margins have recovered from 11.2% a year ago to 16.0% in 26Q2, returning to historical mid-teens targets.
Guidance
Decelerating. This is a massive 23% reduction from the ~R$ 6.1B spent in FY25. The cut reflects a defensive strategy in Brazil, minimizing new investments while funneling cash toward shareholder returns.
Key Questions
Brazil Tariff Effectiveness
The government recently imposed 25% tariffs on several steel imports, yet Brazilian segment margins remain compressed at 10.5%. Are importers absorbing the tariff costs, or is domestic demand structurally weaker than anticipated?
Cash Flow Drag
In H1 2026, operating cash flows did not cover the combined weight of CapEx, dividends, and share buybacks, leading to a R$ 774M reduction in cash. At what point does the aggressive buyback program become constrained by actual free cash flow generation?
North American Cycle Risk
North America now constitutes 75% of your EBITDA. With backlogs at 90 days, how much visibility do you have into 2027, and what contingency plans are in place if US non-residential construction cools?