Gerdau (NYSE: GGB) reported consolidated adjusted EBITDA of BRL 3.4 billion for the second quarter of 2026, marking its strongest performance since the third quarter of 2023. The steelmaker’s North American operations drove the growth, with shipments rising 7% year-on-year and regional adjusted EBITDA expanding by 15% compared to the first quarter.

The company maintained strict financial discipline despite seasonal variations. Gerdau ended the quarter with a debt-to-EBITDA ratio of 0.69 times and generated positive free cash flow of BRL 237 million. This cash generation contributed to a total free cash flow surplus of BRL 2.3 billion in the first half of 2026 compared to the same period last year, driven by EBITDA growth in North America and reduced capital expenditure.

Financial Performance

Consolidated adjusted net income surged 45% quarter-on-quarter to BRL 1.5 billion. Management attributed this improvement to the translation of operating gains into shareholder returns. Consequently, Gerdau SA declared dividends of 23 cents per share, while Metalúrgica Gerdau announced payouts of 11 cents per share. The company also progressed on its share buyback program, which stands at 31% complete as of the end of the second quarter.

Operational Updates

In Brazil, operations showed slight improvements amid ongoing pressure from high import levels. The company is awaiting results from anti-dumping investigations into long and flat steel products, expected in the second half of the year. To enhance competitiveness and align with decarbonization strategies, Gerdau increased its ownership in Dona Francisca Energética, raising self-generated energy consumption in Brazil to over 50%.

Strategic investments are nearing completion. The Miguel Burnier mining expansion is expected to begin operations in the third quarter, with full ramp-up projected to generate annual operational and financial benefits between BRL 1 billion and BRL 1.1 billion. Additionally, a new recycling center in Pindamonhangaba is set to open, reducing long-term exposure to raw material volatility.

What the Numbers Show

The divergence between North American strength and Brazilian headwinds defines the current quarter. While North American shipments grew 7% year-on-year, driven by resilient demand in renewable energy and data centers, Brazil faces margin compression from excessive imported steel. However, the consolidated result remains robust because the high-margin North American business offsets domestic pressures. The 45% quarter-on-quarter rise in adjusted net income to BRL 1.5 billion underscores this dynamic, as operating gains from the US region effectively shielded overall profitability from the softer Brazilian environment.

Outlook and Capital Allocation

Management remains cautious regarding US margins due to potential cost increases, including an 8.5% rise in freight expenses in North America linked to fuel issues. A maintenance shutdown at the Midlothian plant is expected to impact margins temporarily, though management does not anticipate any drop in shipments due to sufficient billet inventory.

Looking ahead, Gerdau plans to reduce capital expenditure guidance. Maintenance capex, previously guided at around BRL 3 billion annually, may be lowered as asset lifespans extend. Any savings will be redirected toward competitive projects in Brazil and North America rather than debt reduction or additional shareholder remuneration, reflecting a focus on structural competitiveness over immediate leverage reduction.

JP Morgan analyst Rodolfo Angele has maintained an Overweight rating on Gerdau (NYSE: GGB) and increased the price target to $6 from $5.5. The adjustment reflects a positive outlook on the steelmaker's stock performance.

The revised target suggests potential upside from the previous level. Gerdau operates in the steel production sector and is listed on the New York Stock Exchange under the ticker symbol GGB.