Gerdau (GGB) Q3 2026 earnings review
Gerdau's North American profit rises, while its Brazil sales shrink
Gerdau's North American steel mills are widening their profit margins while its Brazilian home market barely treads water. Consolidated sales rose 4% from a year ago, and lower raw material costs lifted Adjusted EBITDA by 38% to R$3.77 billion by our math. Operating income also benefited from a R$244 million accounting gain when the Brazilian steelmaker took full control of a domestic hydroelectric plant.
| Net sales | R$18.69B +3.9% from a year ago |
|---|---|
| North America Adjusted Ebitda margin | 27.7% +2.0 percentage points from last quarter |
| Brazil Adjusted Ebitda margin | 10.7% -1.3 percentage points from a year ago |
| Net debt to Adjusted Ebitda | 0.59x 0.69x last quarter (by our math) |
⚖️ Verdict: 🟢 Bullish
The story got better because North American profitability expanded to 27.7% despite planned maintenance in Texas, beating the company's own flat outlook and pushing debt leverage down. One caution: the Brazilian division shrank 10% in sales from a year ago, and a court ruling right after the hydro buyout revived a power-market legal dispute.
The question now is whether North American margins are near a tariff-protected peak or supported by lasting construction demand, and when the Miguel Burnier mine will lift Brazilian profits. The interim financial statements do not report order backlog days or project start-up milestones. Management's conference call and fourth-quarter domestic margins will settle both points.
🐂 Bull Case
North America Carries Profit as Input Costs Fall
Gerdau produces beams, bars and other steel products across the Americas. Management previously forecast that third-quarter profitability in North America would stay flat against the second quarter because of scheduled maintenance at its Midlothian mill in Texas. Instead, the region expanded its Adjusted EBITDA margin — operating cash profit as a share of sales, excluding one-offs — by 2.0 percentage points from last quarter.
- North America sales: R$10.51 billion, up 14.5% from a year ago
- North America Adjusted EBITDA: R$2.91 billion, or 77% of the company total by our math
- Raw material and production input costs: 57.7% of consolidated sales, down 6.0 percentage points from a year ago by our math
- Consolidated gross margin: 17.9%, up 6.0 percentage points from a year ago by our math
The regional expansion matters because summer price increases in the United States more than covered the Texas maintenance costs. Lower scrap and input expenses lifted the company-wide gross margin, even though a stronger Brazilian currency reduced the value of US dollar earnings when translated into reais.
What to watch: the earnings release and call commentary on North American order backlog in days. A reading near the first quarter's 90 days would show that demand from data centers and renewable energy projects can sustain this margin through winter.
Higher Cash Generation Pushes Debt Leverage Down
After funding share buybacks partly with debt last year, management shifted its priority toward reducing leverage and paying shareholders strictly out of cash flow. In the third quarter, the steelmaker generated R$2.70 billion in operating cash flow and spent R$1.10 billion on property, plant and equipment, leaving R$1.60 billion in cash flow after capital spending by our math, up 32% from a year ago.
Because cash accumulated and trailing profit rose, net debt fell to R$7.46 billion, or 0.59 times trailing twelve-month Adjusted EBITDA by our math, down from 0.69 times in June. The company also renewed its US$1.125 billion global credit line through August 2031 and slowed share repurchases to R$31.5 million in the quarter by our math.
What to watch: fourth-quarter capital expenditure against the remaining R$1.37 billion implied by the full-year R$4.7 billion plan. Spending below that mark would leave more cash to reduce gross debt toward management's R$12 billion long-term target.
🐻 Bear Case
Brazil Sales Shrink While Domestic Margins Stay Low
Gerdau's Brazilian operation has struggled with heavy competition from imported steel, which kept its Adjusted EBITDA margin at 10.5% in the second quarter. Management anticipated a slight margin recovery in the third quarter as domestic demand improved and new mining and scrap projects neared completion.
The domestic division's Adjusted EBITDA margin edged up 0.2 percentage points from last quarter to 10.7% by our math, but its sales dropped 9.7% from a year ago to R$6.95 billion. Furthermore, the company left R$158.5 million of deferred tax assets unrecognized in the quarter "Due to the lack of expectation to use tax losses and negative social contribution base", pushing the effective tax rate to 31.6% by our math.
The unbooked tax credits show that domestic entities are still not generating enough taxable profit to absorb their losses. Until the Miguel Burnier iron ore project lowers raw material costs at the Ouro Branco mill, Brazil remains a drag on consolidated returns.
What to watch: fourth-quarter Brazil Adjusted EBITDA margin. A move above 10.7% during a seasonally slower quarter would confirm that cost savings from the new mining platform have started to flow through.
Hydropower Buyout Brings a Reassessed Legal Dispute
In July and August, Gerdau paid R$300 million in cash to buy the remaining 46.06% of Dona Francisca Energética (DFESA), giving it full ownership of the hydroelectric plant in southern Brazil. The company said the buyout is "enhancing the cost competitiveness of its operations by increasing self-generation to more than 50% of its energy consumption". Revaluing its existing stake also added a R$243.8 million one-off accounting gain to third-quarter operating income.
In September, however, Brazil's Superior Court of Justice reinstated a ruling against DFESA in a 2002 dispute with power regulators ANEEL and CCEE. Because of that court decision, the risk of losing the case, "previously assessed as remote, was reassessed as possible". The total claim reaches up to R$3.9 billion, though Gerdau states its maximum exposure is limited to its R$666 million investment in the subsidiary.
What to watch: the court's ruling on DFESA's pending motions for clarification. An unfavorable decision could force Gerdau to record a provision or write down the R$661 million of net assets it just consolidated.
Risks this quarter didn't answer
Because the current filing contains only the condensed interim financial statements, four operational watch items cannot be read until management publishes the full earnings commentary and holds the conference call.
- Miguel Burnier mining start-up: scheduled for the third quarter to add R$1.1 billion in annual EBITDA at full ramp, but operational commissioning is not mentioned in the financial notes.
- North America order backlog: last quantified at 90 days in the first quarter; the notes do not report order book days or steel shipment volumes.
- Midlothian maintenance downtime cost: management previously estimated R$100 million to R$150 million in third-quarter idleness expenses, which are not broken out in the statements.
- Brazil footprint restructuring: following the Recife mill exit, the broader capacity plan and any related closure costs remain undisclosed.
👓 Other Themes
South America Margin Drops Five Points Sequentially
In the South America segment — covering Argentina, Peru and Uruguay — third-quarter sales rose 4.6% from a year ago to R$1.44 billion, but Adjusted EBITDA fell 31.8% to R$159.9 million by our math. That pushed the regional margin down to 11.1% from 16.0% in the second quarter, alongside a R$36.3 million financial charge for hyperinflation in Argentina, while currency translation reduced North American goodwill by R$706.3 million over the nine-month period.
💲 Other KPIs
Cash spending on property, plant and equipment rose slightly from R$1,064 million in the second quarter, but dropped 35.8% from a year ago by our math. Over the first nine months of 2026, capital spending totaled R$3,333 million, or 70.9% of the full-year R$4.7 billion plan, leaving R$1,367 million for the fourth quarter.
Combined trade accounts receivable (money owed by customers) and inventories climbed for a third straight quarter, up 2.8% from June and 16.2% since December by our math. Receivables reached R$6,227 million and inventories hit R$16,490 million, absorbing R$3,769 million of operating cash over the first nine months before supplier payables offset part of the build.
Total weighted-average diluted common and preferred shares fell 1.5% from a year ago by our math. Gerdau repurchased 17.8 million shares for R$342.8 million during the first nine months of 2026 and cancelled 22.9 million treasury shares through August, plus another 277,600 common shares on October 26.
❓ Key Questions
Did the Miguel Burnier mining platform start operations on schedule?
The R$3.6 billion iron ore project in Brazil was scheduled to start up in the third quarter and deliver cost savings at the Ouro Branco mill in the fourth quarter. The interim financial statements do not mention its operational status.
Where does the North American order backlog stand in days?
Management stopped quantifying its North American backlog in the second quarter after reporting 90 days in the first quarter. With regional margins at 27.7%, investors need the exact day count to judge whether demand is holding up into winter.
Could the DFESA court ruling trigger a balance-sheet write-down?
Right after Gerdau took 100% control of the Dona Francisca hydro plant and booked a R$244 million gain, a top court reinstated an adverse ruling in a R$3.9 billion regulatory dispute. Management should clarify how it caps its exposure at R$666 million.
Why did unrecognized tax losses jump by R$158 million?
Gerdau did not recognize R$158.5 million of deferred tax credits in the third quarter because it lacks expectation of future taxable profits in those entities. Management should specify whether those losses sit in the Brazilian steel operations.