• Adjusted EBITDA: BRL3 billion, reflecting cost reduction initiatives and asset optimization in Brazil.
• Net Income: BRL1.432 billion or BRL0.64 per share, over 50% increase from Q2 2024.
• Free Cash Flow: BRL3 billion, with BRL1.8 billion from a judicial deposit withdrawal; excluding this, approximately BRL1.2 billion.
• Leverage: 0.32x net debt over EBITDA, lowest level in the last 12 months.
• Dividends and Share Buyback: 55% payout on net income; 57% of buyback program executed, investing over BRL700 million.
• Cost Savings in Brazil: BRL210 million captured in the quarter.

• Warning! GuruFocus has detected 4 Warning Signs with FRA:3QI.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Gerdau SA (NYSE:GGB) achieved an adjusted EBITDA of BRL3 billion, reflecting successful cost reduction initiatives and asset optimization in Brazil.
• The company reported a significant increase in net income, reaching BRL1.432 billion, which is over 50% higher compared to the previous quarter.
• Gerdau SA (NYSE:GGB) maintained a low leverage ratio of 0.32x net debt over EBITDA, the lowest in the last 12 months, showcasing strong financial health.
• The company executed 57% of its share buyback program, investing over BRL700 million, and announced the cancellation of approximately 77% of the repurchased shares.
• Gerdau SA (NYSE:GGB) captured BRL210 million in cost savings in Brazil during the quarter, with plans to achieve BRL1.5 billion in savings by the start of 2025.

Negative Points

• The global oversupply of steel and uncertainties in the macroeconomic environment continue to impact Gerdau SA (NYSE:GGB)'s operations.
• Excessive steel imports into Brazil, particularly from China, have negatively affected domestic shipments despite increased local demand.
• The company's North American operations face challenges due to a slowdown in economic activity and increased competition from imported goods.
• Gerdau SA (NYSE:GGB) anticipates lower revenues in the coming months due to reduced merchant prices and increased imports in the U.S. market.
• The effectiveness of Brazil's trade defense measures against steel imports has been insufficient, requiring urgent adjustments to curb unloyal competition.

Q & A Highlights

Q: Could you provide more details on the impact of the U.S. elections on your North American operations, particularly regarding shipments and prices? A: Gustavo Werneck Da Cunha, CEO, explained that the election results are expected to be positive for Gerdau in North America. Prior to the elections, there was apprehension affecting demand, but the company maintained asset utilization by adjusting its production mix. The fundamentals of the steel segment remain strong, and the company anticipates a rebound in demand, although the speed of recovery is still uncertain.

Q: Can you elaborate on your capital allocation strategy given the strong cash generation and the current economic environment? A: Rafael Japur, CFO, stated that Gerdau is progressing with its buyback program and has already executed a significant portion. The company is balancing shareholder returns with investments in CapEx and maintaining a robust cash position. The focus remains on generating both short-term and long-term value.

Q: What is your outlook for the Brazilian market, especially concerning steel imports and domestic demand? A: Gustavo Werneck Da Cunha highlighted the challenges posed by excessive steel imports, particularly from China. The company is advocating for more effective trade defense measures. Despite these challenges, Gerdau sees opportunities for growth in domestic demand, especially from the construction industry, and is optimistic about improving profitability in 2025.

Q: How do you view the current spreads in the U.S. market for structural beams and merchant bars compared to rebar? A: Rafael Japur noted that the spread is currently higher due to supply and demand dynamics, with limited investment in new capacity for merchant bars and structurals. This situation provides Gerdau with pricing power in these segments, aligning with their strategic focus on these products.

Q: Could you discuss the impact of the exchange rate on your cost structure and competitiveness in Brazil? A: Rafael Japur explained that approximately 25% of Gerdau's costs in Brazil are dollar-denominated, mainly due to iron ore and metallurgical coal. The current exchange rate environment is favorable for exports, and the company is well-positioned to manage costs and maintain competitiveness.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.