A 27.7% North American margin, a still-unfinished Brazil plan, and a spin-off question management keeps politely refusing
GGB · Earnings Call · 2026-10-27
Gerdau's American Lifeboat Is Now the Ship
Gerdau's third quarter is a tale of two steel companies. North America delivered a 27.7% EBITDA margin, the highest in four years, and now accounts for 77% of group EBITDA. Consolidated EBITDA reached BRL 3.8 billion at a 20.2% margin, free cash flow hit BRL 1.4 billion, and net debt to EBITDA was just 0.58x. S&P revised its outlook to positive on October 22. Yet Brazil remains the thorn: imports, oversupply, and a domestic market management describes as still under pressure. The result is a valuation problem disguised as an operating quarter.
The 77% problem
Analyst Leonardo Correa asked the ritual question: with the U.S. now so dominant, would Gerdau consider a spin-off or strategic move for North America? CFO Rafael Japur was flat: “We have no plans to have a spin-off or any major acquisition in North America to increase our exposure there significantly.” — Rafael Japur, CFO · 2026-10-27 This is not a new answer. On the August call, Japur said “we don't have any action plan or any studies being conducted to implement an important corporate structure change or relisting spin-offs or carve-outs of our assets in North America.” — Rafael Japur, CFO · 2026-08-05 And in February, he said the same. The recurrence matters. The market keeps asking because the earnings mix keeps getting more lopsided; management keeps refusing because the Brazilian plan is supposed to fix the gap. The spin-off question is no longer about structure. It is about credibility.
A Brazil plan still in draft
The genuinely new element this quarter is that Gerdau is openly preparing a Brazilian restructuring to be detailed at its December 4 Investor Day. CEO Gustavo Werneck said the company cannot wait for external fixes.
we cannot just sit with our arms crossed, waiting for factors which are not under our control will improve our profitability and margins in Brazil.
He compared it to the 2018 North American playbook: divest non-core products, invest in mills, cut costs, reposition the portfolio. Japur is coordinating the work. That is a real strategic pivot signal, but a familiar one; prior calls have promised a Brazilian transformation without giving the market a number. The freshest language is about CapEx per ton. Gustavo was blunt: “it is incredible how executing CapEx in Brazil became costly and expensive.” — Gustavo Da Cunha, CEO · 2026-10-27 That reframes the old Brazil cost problem, and it explains why 2026 CapEx now tracks closer to BRL 4 billion rather than the BRL 4.7 billion guidance. It also explains why the market may treat the Investor Day as a litmus test rather than a victory lap.
The special steels business is hostage to production of heavy vehicles, which started the year down 18-20% and is only now closing toward a mid-single-digit decline. South America was weak too, with Argentina volumes and cost dilution; Japur guided to a mid-teens EBITDA margin norm, closer to Peru. That is South America as a recurring drag, not a growth engine.
Trade defense, iron ore, and the 2027 bridge
The top company keyword this quarter is trade defense mechanism, with technical rigor close behind. This is not new. Gerdau has spent multiple quarters arguing that Brazilian steel imports are unfair and that the government's defenses are too slow. In April 2025, Werneck said the government had built “a very short wall and full of holes.” — Gustavo Werneck, CEO · 2025-04-29 This quarter he sounded more hopeful, citing the technical rigor of MDIC and the continuity expected after Lula's reelection. He even admitted: “I like the hard core (sic) [ quota ], setting a limit after which no more imports will come in. But that's my personal opinion.” — Gustavo Da Cunha, CEO · 2026-10-27 That is a sharper personal admission than before, but the base case remains the same: antidumping on heavy plates and wire rod is evolving, not resolved. The global tape also flags trade defense as a top-20 market theme, but for Gerdau it is a well-worn refrain. The market should treat it as an option, not a forecast.
The other Brazil lever is Iron ore. The Miguel Burnier expansion was supposed to be the main 2027 EBITDA driver, with a benefit of around BRL 400 million. This quarter, the ramp-up slipped. Werneck said final integrated tests are underway, but the rainy season and El Niño will slow the ramp through the fourth quarter and into the first. “It's not the ideal in terms of what we expected because the fourth quarter and the first quarter of the following year are rainier years in the southern part of the country, especially now with El Niño.” — Gustavo Da Cunha, CEO · 2026-10-27 That is a change from the August call, when Japur said “if everything unfolds according to our current schedule, we should be completing the ramp-up by year-end, start of next year.” — Rafael Japur, CFO · 2026-08-05 The project is not broken, but the timing has slipped. For a Brazil story already leaning on trade defense and cost cuts, a delayed mining benefit makes the 2027 recovery less self-contained.
North America: data centers, DEACERO, and the USMCA split
North America is carrying the group, and the demand mix is increasingly tied to data centers, renewable energy, transmission, and reindustrialization. That is why the risk map has shifted. The new competitive threat is DEACERO, a Mexican entrant into beams. Japur argued the ramp will be slow because the product is complex, and he framed the bigger risk as a deceleration in the AI and energy investment pocket. “If we see a substantial deceleration of this demand pocket, perhaps this would be a much more representative risk than the ramp-up of a new DEACERO mill.” — Rafael Japur, CFO · 2026-10-27 He also offered a new USMCA scenario: a U.S.-Canada agreement would be net positive for Gerdau's specialized Canadian mills, while a U.S.-Mexico agreement could be net negative because of DEACERO. That is a more granular read than prior calls, which mostly treated USMCA as background noise. The agreement between Mexico theme is now a company-specific margin variable.
Gerdau is not in crisis. It is in a valuation trap. The North American business is strong enough to subsidize the group, but not strong enough to make investors ignore Brazil. The Brazilian fix is real but unfinished; the mining project is delayed; the trade defense mechanism is a recurring hope; and the spin-off question keeps getting a polite no. The December 4 Investor Day is now the event that matters. Until then, the quarter tells you what Gerdau is: a North American steel profit pool with a Brazilian problem attached. The market will decide whether that deserves a steel multiple or a sum-of-the-parts argument.