GuruFocus -
- Adjusted EBITDA: BRL3 billion, reflecting cost reduction initiatives and asset optimization in Brazil.
- Net Income: BRL1.432 billion or BRL0.64 per share, a significant increase of over 50% compared to the previous quarter.
- Free Cash Flow: BRL3 billion, with BRL1.8 billion from a judicial deposit withdrawal; excluding this, free cash flow was approximately BRL1.2 billion.
- Leverage: 0.32x net debt over EBITDA, the lowest level in the last 12 months.
- Dividends and Share Buyback: 55% payout on net income year-to-date, with over BRL700 million invested in the buyback program.
- Cost Savings in Brazil: BRL210 million captured in the quarter, with a target of BRL1.5 billion in savings by 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metalurgica Gerdau SA (BSP:GOAU3) achieved an adjusted EBITDA of BRL3 billion, reflecting successful cost reduction initiatives and asset optimization in Brazil.
- The company posted a significant net income increase of over 50% compared to the previous quarter, reaching BRL1.432 billion.
- Free cash flow generation was strong, totaling BRL3 billion, with a substantial portion due to a favorable legal settlement.
- The company's leverage ratio is at its lowest level in the last 12 months, with a net debt over EBITDA of 0.32x.
- Metalurgica Gerdau SA (BSP:GOAU3) has been recognized by major rating agencies, which have raised the company's rating, reflecting a strong balance sheet.
- The global oversupply of steel and uncertainties in the macroeconomic environment continue to impact the company's operations.
- Despite increased domestic demand, shipments in Brazil are affected by excessive steel imports, which have not been adequately addressed by trade defense measures.
- The U.S. market faces potential shipment and price impacts due to economic slowdown and increased competition from imports.
- The company's profitability in North America is expected to be pressured by lower merchant prices and seasonal factors in the fourth quarter.
- Challenges remain in effectively reducing the influx of imported steel into Brazil, with current trade defense measures proving insufficient.
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 fundamentals of the steel segment remain strong. The company is maintaining asset utilization and adjusting its product mix to optimize operations. Rafael Japur, CFO, added that the U.S. economy's PMI has been negative, impacting industrial demand and prices, but a rebound is expected in the second half of next year.
Q: Can you elaborate on your capital allocation strategy given the strong cash generation and recent buyback activities?
A: Rafael Japur, CFO, stated that Gerdau is progressing with its buyback program, having 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, CEO, 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, CFO, explained that the spread is currently higher due to supply and demand dynamics, with limited capacity expansion for merchant bars and structurals. Inflationary pressures on labor have also contributed to higher pricing power for these products. Gerdau's strategy to focus on these products has been validated by these market conditions.
Q: Could you discuss the impact of the exchange rate on your cost structure and export strategy?
A: Rafael Japur, CFO, noted that a higher exchange rate improves the competitiveness of Brazilian products. About 25% of Gerdau's costs in Brazil are dollar-denominated, primarily for iron ore and metallurgical coal. The company plans to leverage the favorable exchange rate to increase exports, focusing on higher value-added products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.