GERDAU S.A. 6-K Analysis & Summary – 2/21/2025

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GERDAU S.A.

6-K

Earnings Release (Preliminary), Guidance Update, Stock Buyback

Filing date:

02/21/2025

TLDR:

Gerdau S.A. announces its 4Q24 earnings, highlights financial discipline, and discusses strategic investments and a new share buyback program.

ELI5:

Gerdau, a steel company, had a mixed year. They’re doing well financially, but facing tough competition from cheaper steel coming into Brazil and struggling with profits in North America. They’re trying to improve by cutting costs and investing in the future.

Accession #:

0001104659-25-015932

Published on

March 16, 2025

Analyst Summary

Adjusted EBITDA: R$10.8B
Adjusted Net Income: R$4.3B
Leverage: 0.48x
CAPEX: R$6.2B (47% Maintenance, 53% Competitiveness)
Free Cash Flow: R$2.9B
Brazil’s net sales decreased by 3.2% year-over-year.
North America’s net sales decreased by 3.7% year-over-year.
Special Steel’s net sales decreased by 3.5% year-over-year.
South America’s net sales increased by 12.5% year-over-year.
Steel Import Penetration Rate (Brazil): 18.5%
Accident Frequency Rate: Improved to 0.59
EPS (2024): R$2.18
P/E Ratio: 6.47
Adjusted EBITDA decreased from R$13.5B in 2023.

Opportunities and Risks

Steel Imports (Brazil): The high penetration rate of imported steel poses a significant threat to domestic producers.
Macroeconomic Downturn: Expectations of a macroeconomic slowdown could negatively impact demand.
Spread Squeeze (North America): Increased scrap costs and lower average prices could compress margins.
Import Tariff Discussions (U.S.): Uncertainty surrounding import tariffs could affect capacity utilization and spreads.
Non-Residential Construction Demand (U.S.): Positive outlook for non-residential construction, infrastructure, and government tax packages.
Cost Improvement Opportunities: Continuous focus on cost improvements could enhance profitability.
Strategic CAPEX Investments: Investments in capacity addition and modernization could drive future growth.
Share Buyback Program: Returns value to shareholders and signals confidence in the company’s prospects.

Potential Implications

Company Performance

Monitor the effectiveness of trade defense measures in Brazil and advocate for policies that promote fair competition.
Closely track macroeconomic indicators and adjust strategies accordingly.
Continue to focus on cost optimization and operational efficiency.
Evaluate the potential impact of import tariff discussions in the U.S. and develop contingency plans.

GERDAU S.A. (6-K Filing – February 21, 2025) Report

Executive Summary

This report analyzes Gerdau S.A.’s 6-K filing, focusing on the 4Q24 earnings release. The overall assessment suggests a mixed outlook. While Gerdau demonstrates financial resilience with a low leverage ratio and a new share buyback program, challenges persist, including steel import penetration in Brazil and margin pressures in North America. The company’s focus on cost savings, strategic CAPEX, and shareholder returns is positive, but macroeconomic uncertainties and import risks warrant caution. A “Hold” recommendation seems appropriate, pending further clarity on the effectiveness of trade defense measures and the impact of macroeconomic headwinds.

Company Overview

Gerdau S.A. is a leading steel producer with operations in Brazil, North America, and South America. The company’s business model involves manufacturing and selling a variety of steel products. The industry is cyclical and sensitive to macroeconomic conditions, trade policies, and raw material prices. Recent developments include a new share buyback program, strategic CAPEX investments, and a reorganization of reportable segments.

Detailed Analysis

Management’s Narrative (MD&A)

Management highlights the all-time best frequency rate in people’s safety and emphasizes financial discipline and a solid balance sheet. They acknowledge the impact of steel imports in Brazil and discuss strategies to create greater cost competitiveness and reduce CO2 emissions through renewable energy investments. The tone is cautiously optimistic, acknowledging both opportunities and challenges. Forward-looking statements are qualified with disclaimers regarding risks and uncertainties.

Financial Statement Analysis

Key Highlights:

Adjusted EBITDA: R$10.8B
Adjusted Net Income: R$4.3B
Leverage: 0.48x
CAPEX: R$6.2B (47% Maintenance, 53% Competitiveness)
Free Cash Flow: R$2.9B

Income Statement:

The earnings release provides quarterly and annual comparisons. Brazil’s net sales decreased by 3.2% year-over-year. North America’s net sales decreased by 3.7% year-over-year. Special Steel’s net sales decreased by 3.5% year-over-year. South America’s net sales increased by 12.5% year-over-year. These figures suggest regional variations in performance, with South America showing the strongest growth.

Balance Sheet:

The low leverage ratio (0.48x) indicates a strong financial position. The company’s liquidity position is also healthy, with a significant amount of cash and equivalents.

Cash Flow Statement:

Free cash flow of R$2.9B demonstrates the company’s ability to generate cash. CAPEX investments are significant, indicating a commitment to future growth and competitiveness.

Key Ratios and Trends:

EBITDA Margin: Varies by region, with North America showing a decline from 19.2% in 4Q23 to 12.1% in 4Q24.
Utilization Rate: Also varies by region and segment, indicating different levels of capacity utilization.

Uncommon Metrics

Steel Import Penetration Rate (Brazil): 18.5%, highlighting the competitive pressure from imports.
Accident Frequency Rate: Improved to 0.59, demonstrating a focus on workplace safety.

Footnotes & Supplementary Disclosures

The earnings release includes information on asset optimization and cost-savings initiatives, strategic CAPEX projects, and changes in reportable segments. These disclosures provide valuable insights into the company’s strategic priorities and operational improvements.

Comparative & Trend Analysis

Historical Comparison:

Compared to 2023, some regions experienced a decrease in net sales and EBITDA, while others showed growth. This highlights the importance of regional diversification and adaptability to changing market conditions.

Peer Comparison:

Without specific peer data, it’s difficult to provide a detailed peer comparison. However, the report mentions the impact of steel imports, suggesting that Gerdau’s performance is influenced by broader industry trends.

Risk & Opportunity Assessment

Risks:

Steel Imports (Brazil): The high penetration rate of imported steel poses a significant threat to domestic producers.
Macroeconomic Downturn: Expectations of a macroeconomic slowdown could negatively impact demand.
Spread Squeeze (North America): Increased scrap costs and lower average prices could compress margins.
Import Tariff Discussions (U.S.): Uncertainty surrounding import tariffs could affect capacity utilization and spreads.

Opportunities:

Non-Residential Construction Demand (U.S.): Positive outlook for non-residential construction, infrastructure, and government tax packages.
Cost Improvement Opportunities: Continuous focus on cost improvements could enhance profitability.
Strategic CAPEX Investments: Investments in capacity addition and modernization could drive future growth.
Share Buyback Program: Returns value to shareholders and signals confidence in the company’s prospects.

Conclusion & Actionable Insights

Gerdau S.A. faces a complex environment with both challenges and opportunities. The company’s financial resilience, cost-saving initiatives, and strategic investments are positive signs. However, the impact of steel imports in Brazil and macroeconomic uncertainties warrant caution.

Overall Assessment: Hold

Recommendations:

Monitor the effectiveness of trade defense measures in Brazil and advocate for policies that promote fair competition.
Closely track macroeconomic indicators and adjust strategies accordingly.
Continue to focus on cost optimization and operational efficiency.
Evaluate the potential impact of import tariff discussions in the U.S. and develop contingency plans.

Gerdau S.A. Financial Analysis – 4Q24 Earnings Release

This report analyzes Gerdau S.A.’s financial performance based on their 4Q24 Earnings Release (Exhibit 99.1). The analysis includes key financial ratios, trends, and comparisons to industry benchmarks where possible. Due to the limited scope of the provided document, some ratios cannot be calculated, and industry comparisons are based on general knowledge and publicly available information.

1. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin: Not enough information to calculate.
Operating Profit Margin: Not enough information to calculate.
Net Profit Margin: Not enough information to calculate.
Return on Assets (ROA): Not enough information to calculate.
Return on Equity (ROE): Not enough information to calculate.
Earnings Per Share (EPS) – Basic and Diluted: R$0.15 (4Q24), R$2.18 (2024)
- Trend: The full year EPS is R$2.18. To determine the trend, we would need the EPS from the previous comparable period, which is not provided in the filing.
- Industry: The steel industry is cyclical, and EPS varies significantly based on market conditions. Benchmarking requires specific competitor data.

Liquidity

Current Ratio: Not enough information to calculate.
Quick Ratio (Acid-Test Ratio): Not enough information to calculate.
Cash Ratio: Not enough information to calculate.

Solvency/Leverage

Debt-to-Equity Ratio: Not enough information to calculate.
Debt-to-Assets Ratio: Not enough information to calculate.
Interest Coverage Ratio (Times Interest Earned): Not enough information to calculate.
Leverage: 0.48x
- Trend: Leverage decreased from 0.53x in 2Q24 and increased from 0.32x in 3Q24.
- Industry: A leverage ratio of 0.48x is generally considered healthy for a capital-intensive industry like steel.

Activity/Efficiency

Inventory Turnover: Not enough information to calculate.
Days Sales Outstanding (DSO): Not enough information to calculate.
Days Payable Outstanding (DPO): Not enough information to calculate.
Asset Turnover: Not enough information to calculate.

Valuation

Price-to-Earnings Ratio (P/E): Stock price at the time of reporting (GGB – 2025-02-21 – $2.82). EPS (2024) = R$2.18. Assuming an exchange rate of approximately 5 BRL/USD, EPS in USD is $0.436. P/E = $2.82 / $0.436 = 6.47
- Industry: A P/E ratio of 6.47 is relatively low, potentially indicating undervaluation or reflecting concerns about future growth prospects in the steel industry.
Price-to-Book Ratio (P/B): Not enough information to calculate.
Price-to-Sales Ratio (P/S): Not enough information to calculate.
Enterprise Value to EBITDA (EV/EBITDA): Not enough information to calculate.

Growth Rates

Revenue Growth:
- Brazil BD: -3.2% (2024 vs 2023)
- North America BD: -3.7% (2024 vs 2023)
- Special Steel BD: -3.5% (2024 vs 2023)
- South America BD: +12.5% (2024 vs 2023)
Net Income Growth: Not enough information to calculate.
EPS Growth: Not enough information to calculate.

Other Relevant Metrics

Adjusted EBITDA: R$10.8B (2024)
- Trend: Adjusted EBITDA decreased from R$13.5B in 2023.
- Significance: Gerdau highlights Adjusted EBITDA as a key indicator of cash generation. The decrease suggests a less profitable year compared to the previous year.
CAPEX: R$6.2B (2024)
- Significance: A significant portion (53%) was allocated to competitiveness, indicating a focus on long-term growth and efficiency improvements.
Free Cash Flow: R$2.9B (2024)
- Significance: Reflects the company’s competitiveness and financial resilience.
Share Buyback Program:
- Significance: Demonstrates confidence in the company’s future prospects and returns value to shareholders.
Accident Frequency Rate: 0.59 (2024)
- Trend: Improved from 0.70 in 2023.
- Significance: Highlights the company’s focus on workplace safety.

2. Commentary

Gerdau’s 4Q24 earnings release reveals a mixed performance. While the company achieved its best-ever safety record and maintained a low leverage ratio, it experienced a decrease in Adjusted EBITDA and revenue decline in most business divisions except South America. The company is actively managing costs and investing in strategic CAPEX projects to enhance competitiveness. The share buyback program and dividend distribution demonstrate a commitment to returning value to shareholders, despite the challenging market conditions.