Gerdau Q1 2026 slides: North America drives 75% of EBITDA growth

Gerdau delivered a mixed Q1 2026 update: revenue beat expectations at $3.36B vs. $3.31B consensus, while EPS missed at $0.1026 vs. $0.1225 expected, though shares still rose 3.94% premarket to $4.38. Adjusted EBITDA increased 25% to R$3.0B, leverage stayed low at 0.74x net debt/EBITDA, and the company returned capital via R$354M of dividends and R$211M of buybacks. North America remained the key driver, while Brazil faced rising import penetration and tariff/trade-defense issues; management reiterated a constructive 2026 outlook and highlighted major growth projects and renewable energy investments.

Analysis

The market is implicitly pricing GGB as a beneficiary of a widening regional spread trade: North America is acting like an earnings stabilizer while Brazil is becoming an option on trade enforcement. The key second-order effect is that import pressure in Brazil can actually improve reported margins for domestic incumbents before it forces a policy response, because local producers cut lower-margin volume and keep pricing discipline on the remainder. That makes the next 1-2 quarters look better than the underlying end-market demand would suggest, especially if U.S. spreads stay firm and the company continues to harvest operating leverage from its North American backlog.

The real catalyst set is not the quarter itself but the scheduled ramp of capex projects into second half 2026. If Miguel Burnier and the Texas expansion start on time, GGB moves from a cash-return story to a self-help earnings rerating story, with incremental EBITDA coming from higher-quality volumes and better raw-material integration. The risk is execution slippage plus a macro turn: higher rates or weaker construction activity in the U.S. would compress the current margin tailwind quickly, and any easing of trade defense in Brazil would expose the domestic business to a faster-than-expected volume shock.

This setup is mildly positive but not yet a clean breakout. The stock has likely moved on the headline beat, but the larger undervalued piece is the asymmetry between a near-term domestic squeeze and medium-term project-driven earnings uplift. Consensus may be underestimating how much of the current margin resilience is policy-dependent rather than demand-dependent, which makes the equity vulnerable if anti-dumping decisions disappoint in H2 2026.

On the other hand, the balance sheet is strong enough that capital returns should remain intact while the company funds growth projects, which limits downside versus more levered peers. That makes GGB more attractive as a relative-value long than a standalone directional bet: investors are paying for cash yield, optionality on U.S. industrial demand, and a call option on Brazil trade protection, with limited near-term financial stress.

Key Decisions for Investors

• Long GGB vs. short a higher-beta U.S. industrial cyclicals basket for the next 3-6 months: the stock has a cleaner balance-sheet and buyback support, while the market is likely underpricing the earnings durability from North American backlog and project ramp optionality.
• Use pullbacks post-earnings to accumulate GGB common or Jan-2027 calls: the risk/reward is favorable if H2 2026 project startups land on schedule, with upside tied to incremental EBITDA rather than multiple expansion alone.
• Pair trade: long GGB / short a Brazilian steel proxy more exposed to import leakage and weaker pricing discipline; this isolates the benefit of GGB’s North American mix and better capital allocation.
• If H2 2026 trade-defense decisions look weak, reduce exposure quickly: the domestic business could re-rate down within weeks if import penetration keeps rising and pricing support fails.
• For event-driven traders, buy limited-risk upside via call spreads rather than outright stock if entering above recent highs: the thesis depends on execution over several quarters, and options cap downside if the market fades the earnings beat.