Gerdau (GGB) Q3 2025: North America Drives 65% EBITDA Amid Brazil Import Surge
North America’s outperformance delivered record EBITDA share for Gerdau, offsetting severe import headwinds in Brazil and underscoring the strategic value of geographic diversification. Capital returns accelerated through buybacks and dividends, even as management struck a cautious tone on Brazil’s outlook and signaled sharper capital allocation discipline. With the sustainable mining project nearing completion, Gerdau is poised for a cost structure reset in 2026, but near-term results hinge on trade defense outcomes in Brazil.
Summary
- North American Segment Dominance: Resilient US demand and reduced imports led to North America generating a record 65% of consolidated EBITDA.
- Brazilian Market Under Strain: Persistent steel imports eroded domestic profitability, pushing leadership to advocate for urgent trade defense measures.
- Capital Allocation Tightening: Buybacks and dividends surged, but future investment will favor cost competitiveness and US opportunities over Brazilian expansion.
Performance Analysis
Gerdau’s third quarter was a study in geographic divergence. The North American business continued to outperform, with resilient steel demand, higher prices, and increased shipments combining to deliver a record 65% share of consolidated EBITDA. Reduced imports in the US market amplified this effect, driving a more than 10% YoY increase in total shipments for the region. Cash generation rebounded sharply, with free cash flow conversion at 37% of EBITDA and working capital release reducing the cash conversion cycle to 78 days.
In stark contrast, the Brazilian segment remained under acute pressure from excessive steel imports, which now account for 29% of domestic sales. Management described the local market as having reached a limit on cost-cutting and productivity gains, with further improvement hinging on government trade defense intervention. South America outside Brazil saw some recovery, but could not fully offset the drag from the core Brazilian business. Capital returns accelerated, with Q3 payout reaching 75% of net income, driven by both dividends and aggressive share buybacks (88% of the 2025 program completed).
- North America Margin Strength: Higher steel prices and healthy order backlogs led to record profitability in the US and Canada operations.
- Brazil Drag Intensifies: Import penetration and weak local demand resulted in sub-10% margins, with some operations running at a loss.
- Free Cash Flow Inflection: Working capital discipline and reduced leverage allowed for increased shareholder returns without compromising balance sheet strength.
Looking forward, the near-term trajectory will depend on the balance between North America’s sustained demand and Brazil’s policy response to imports. Management’s capital allocation discipline and the upcoming mining project are set to reshape cost structure in 2026.
Executive Commentary
"We ended the third quarter of 2025 with a very solid performance in North America, reflecting fairly resilient demand for steel in the domestic market. The reduction in imports contributed to an increase in total shipments in both quarterly and annual comparison, reaching more than 10% increase. In addition, once again, the North America segment had a record share in our results, accounting for 65% of consolidated EBITDA in the period."
Gustavo Wernecki, Chief Executive Officer
"During this Q3, we generated a free cash flow of 1 billion BRLs, converting 37% of our EBITDA into cash, reversing a trend that we had been seeing in the prior quarters of cash consumption in third quarters. There was an important working capital release of 300 million BRLs, enabling us to reduce our cash conversion cycle... Our leverage measured by net debt over EBITDA, given the cash generation we had in Q3, was reduced to 0.81 times."
Rafael Japor, Chief Financial Officer
Strategic Positioning
1. Geographic Diversification as a Defensive Moat
Gerdau’s internationalization strategy has proven decisive, with North America’s robust demand and lower import penetration shielding the company from Brazil’s import-driven margin collapse. This diversification allowed for continued capital returns and investment in competitive assets despite regional volatility.
2. Capital Allocation Shifts Toward Cost Competitiveness
Management is prioritizing investments that directly enhance cost competitiveness, especially in the face of global steel overcapacity and Chinese oversupply. The upcoming Miguel Bonaire mining project, now 90% complete, will reduce blast furnace costs and lower coal consumption, targeting a $30/ton cash cost and a projected 400 million BRL EBITDA benefit in year one.
3. Trade Policy and Structural Transformation in Brazil
Brazilian operations are at an inflection point, with leadership signaling that further cost cuts are no longer effective. The path forward depends on government trade defenses to stem import flows. If policy support fails, Gerdau will accelerate transformation plans, including revisiting production routes, asset footprint, and potential recycling of capital within Brazil.
4. Buybacks Favored Over Dividends for Capital Return
Share buybacks have become the preferred capital return mechanism, reflecting both valuation discipline and management’s confidence in long-term value creation. With nearly 1 billion BRL already deployed in 2025 and 88% of the program completed, buybacks are expected to remain the primary outlet for excess cash.
5. US Infrastructure and Data Center Demand as Growth Engines
Order backlogs in the US remain above historical averages, with demand from data centers and infrastructure projects providing multi-quarter visibility. Management highlighted the magnitude of ongoing data center construction and continued steel deliveries for renewable energy, reinforcing a constructive outlook for the North American segment.
Key Considerations
This quarter’s results underscore the strategic urgency of geographic diversification and capital allocation discipline. While North America anchors profitability, Brazil’s import headwinds pose structural challenges that will require either policy intervention or accelerated transformation.
Key Considerations:
- Brazilian Trade Defense Uncertainty: The pace and effectiveness of government action on steel imports will dictate the trajectory of domestic margins and capital investment.
- Mining Project Ramp-Up: The Miguel Bonaire project will be a key swing factor for 2026 cost structure and Brazilian competitiveness.
- US Demand Durability: Continued strength in data center and infrastructure steel demand provides a buffer against global cyclicality.
- Capital Return Flexibility: Buyback preference signals management’s focus on valuation and risk-adjusted returns, with payout ratios exceeding policy minimums.
- Cost Competitiveness Over Growth: New investments will be scrutinized for cost reduction potential rather than top-line expansion, particularly in oversupplied markets.
Risks
Brazilian operations remain highly exposed to policy risk, with further import surges threatening sustained losses absent effective trade defense. Global steel overcapacity and Chinese exports continue to pressure margins and limit pricing power, especially in less protected markets. Execution risk on the mining project ramp-up could delay or dilute anticipated cost benefits, while North American demand could soften if infrastructure spending slows or data center buildouts stall.
Forward Outlook
For Q4, Gerdau guided to:
- Stable North American demand, but with typical seasonal shipment declines.
- Further margin compression in Brazil due to seasonality and ongoing import pressure.
For full-year 2025, management maintained guidance:
- CapEx reduction to 4.7 billion BRLs for 2026, a 22% decrease from 2025’s forecast.
Management highlighted several factors that will shape 2026:
- Mining project cost savings and operational ramp-up in Brazil.
- Potential for trade defense measures to stabilize domestic margins.
Takeaways
Gerdau’s results reinforce the importance of its North American footprint, which now serves as the company’s primary profit engine and capital source. Brazil’s challenges are structural, not cyclical, with management signaling readiness to transform or rationalize the domestic business if policy support fails. Capital allocation will remain conservative, with a bias toward cost competitiveness and buybacks over expansion.
- North America’s resilience is the core earnings driver, providing stability and enabling shareholder returns despite emerging market headwinds.
- Brazil’s future hinges on trade defense and mining execution, with management prepared to accelerate structural changes if necessary.
- Investors should monitor policy developments, mining ramp-up, and US demand signals as the key swing factors for 2026 and beyond.
Conclusion
Gerdau’s Q3 2025 results highlight a business increasingly anchored by North America, with disciplined capital allocation and strategic diversification offsetting acute challenges in Brazil. Execution on cost reduction and policy advocacy will determine the next phase of value creation.
Industry Read-Through
Gerdau’s experience this quarter reflects a broader industry reality: North American steelmakers benefit from resilient infrastructure and data center demand, while exposure to Brazil or other emerging markets brings heightened import and policy risk. Capital allocation discipline and cost competitiveness are emerging as the most critical levers for global steel producers, given chronic oversupply and Chinese export pressure. Mining integration and supply chain control are now differentiators for those seeking to defend margins, especially in volatile regulatory environments. Other regional steelmakers should heed the warning on import penetration and the necessity of proactive engagement with policymakers to sustain domestic industry viability.