Gerdau：“Steel” feeling the import pressure but seeing signs of improvement

Investment Rating - The report maintains a Neutral investment rating across all bonds for Gerdau, indicating a cautious outlook despite strong credit metrics and liquidity [4][8][9]. Core Insights - Gerdau's results were better than expected in a challenging steel environment, with EBITDA of US$503 million falling 11% sequentially and 34% year-over-year [5][6]. - The company generated US$40 million in cash during the quarter, an improvement from a US$51 million cash burn in the previous quarter, driven by smaller working capital consumption [6][35]. - Management expects a positive outlook for most business units in the second half of 2024, with anticipated demand recovery in Brazil and North America [6][8]. Summary by Relevant Sections Financial Performance - Gerdau's EBITDA margin deteriorated from 17.4% in Q1 2024 to 15.8% in Q2 2024, reflecting pressures from pricing and costs [5][6]. - Total shipments in Brazil fell by 9% sequentially and 12% year-over-year, impacted by lower export volumes and production shutdowns [3][15]. - Average realized prices in Brazil were US$994 per ton, down 1% sequentially and 9% year-over-year, with domestic prices showing a 5% decline sequentially [15][17]. Regional Performance - North America saw a 3% sequential increase in shipments, driven by stable backlogs in key industries, but pricing was weaker, with average realized prices at US$1,180 per ton, down 6% sequentially [21][23]. - South America experienced a 10% sequential increase in shipments, but overall demand remains weak, leading to a 25% decline in EBITDA sequentially [28][29]. - The specialty steel segment showed a sequential improvement in shipments, with EBITDA rising 17% sequentially despite lower realized prices [32][33]. Management Outlook - Management is optimistic about demand recovery in Brazil's auto and construction sectors, expecting lower imports in the second half of 2024 due to government tariff adjustments [6][8]. - Cost reduction initiatives are underway, aiming for R$1 billion in savings in Brazil and R$1.5 billion company-wide [3][6]. - A new share buyback program has been approved, indicating management's confidence in future cash generation [35].