Gerdau's Q1 2025: Unraveling Contradictions in Mexico Investments, Brazil Competition, and Dividend Strategies

Mexico CapEx and market uncertainties, Brazil import competition and government response, US demand and product mix strategy, dividend payout and share buybacks, Mexico project investment and rationale are the key contradictions discussed in Gerdau's latest 2025Q1 earnings call.



Financial Performance and Capital Allocation:
- Gerdau reported adjusted EBITDA of BRL2.4 billion with net income of BRL758 million, and a net income per share of BRL0.37.
- The results were stable compared to the previous quarter, with North America operations recovering due to higher volumes and better prices, offsetting a drop in Brazil operations.
- The company maintained a financial policy of net debt over EBITDA at 0.69 times, allowing for continued investments in strategic projects and maintaining financial flexibility for shareholder value creation.

Capital Expenditure and Strategic Investments:
- The company invested BRL1.4 billion in the first quarter, focusing on strategic projects such as flat steel expansion and mining capacity expansion.
- These investments are expected to yield a mid-term benefit of BRL1.4 billion, enhancing competitiveness and profitability.
- Gerdau emphasized a review of future CapEx levels due to uncertainties in the global trade defense environment and potential adjustments to investment plans in Mexico.

Brazilian Market Challenges and Trade Defense:
- The domestic market in Brazil continued to face challenges with 22% import penetration of steel, impacting profitability.
- Gerdau is awaiting government measures to address this, potentially including hard quotas and anti-dumping measures to protect the domestic steel industry.
- The company expressed concern about the slow decision-making process by the Brazilian government in implementing trade defense mechanisms.

US Market Outlook and Backlog:
- Gerdau's North American operations saw a significant increase in volumes delivered, with an order backlog returning to over 70 days.
- The US market showed resilience, particularly in non-residential construction, despite economic uncertainties.
- The company attributed this to strong backlog growth and potential benefits from US infrastructure packages and construction projects.