Gerdau's adjusted profit falls near 9% in Q2, tariffs boost US operations

Brazilian steelmaker Gerdau reported an 8.6% year-on-year decline in Q2 adjusted net profit to 864 million reais, slightly below analysts' expectations, primarily due to weaker performance in South America outside Brazil. This profit decline occurred despite a 5.5% rise in total net revenues to 17.5 billion reais and was partially mitigated by strong results from its North American operations, which saw improved performance attributed to U.S. tariffs reducing imports and rebalancing supply. Adjusted EBITDA fell 2.4% to 2.56 billion reais, mostly in line with expectations. JPMorgan analysts deemed the results "mainly neutral," highlighting North American strength, a key region accounting for over half of Gerdau's net revenue, as effectively offsetting challenges in other South American segments.

Analysis

Gerdau's second-quarter results present a geographically divergent performance, with overall figures landing near analyst expectations. The company reported an 8.6% year-over-year decline in adjusted net profit to 864 million reais, a figure that was slightly ahead of the 847 million reais consensus estimate. This profit contraction occurred despite a 5.5% increase in total net revenues to 17.5 billion reais, driven by a 4.1% rise in steel sales volume, suggesting margin compression. The primary driver of the earnings decline was specified as weaker performance in its South American operations outside of Brazil. However, this was significantly offset by strength in the North American division, which accounts for over half of Gerdau's net revenue. This segment's improved performance is directly attributed to higher U.S. tariffs, which have curtailed steel imports and rebalanced domestic supply. The adjusted EBITDA of 2.56 billion reais was down 2.4% but was almost perfectly in line with estimates, reinforcing the neutral sentiment expressed by JPMorgan analysts, who noted that strength in North America compensated for challenges in the Brazilian and other South American business units.

Key Decisions for Investors

• Investors should closely monitor developments in U.S. trade policy, as the performance of Gerdau's largest revenue segment is currently highly dependent on the continuation of steel tariffs.
• Given the weakness in South American operations, it is crucial to assess the company's outlook and strategy for this region in upcoming reports, as it remains a significant drag on consolidated profitability.
• With results largely in-line with expectations and deemed 'neutral' by analysts, a 'hold' or 'monitor' stance is warranted until a clearer catalyst emerges, such as a significant shift in regional demand or commodity prices.