Prepared remarks
Thank you, Ari. Good morning. And in fact, good afternoon, all of you. I hope you're doing well, and I really appreciate the opportunity to join you for another earnings release presentation. We will briefly discuss the highlights of the second quarter of 2026. I will also talk about the outlook for our operations, and then we will move on to the Q&A session. In the second quarter, we recorded growth in shipments, both quarter-over-quarter and year-over-year with a 7% increase in volumes in North America when compared to the same period last year. Resilient demand in the key sectors where we operate led to a 15% increase in adjusted EBITDA in North America in the second quarter compared to the first 3 months of this year, 2026. This strong result also reflects solid operating performance from our plants in the region. Meanwhile, we posted a slight improvement in the results of our Brazilian operations in the second quarter, reflecting a series of initiatives focused on increasing the profitability and productivity of our operations in the country.
This gradual improvement in results occurred amid continued pressure from imports, which despite having slowed down during the period, remain at high levels year-to-date. In this context, we await the outcome of the antidumping investigations into long and flat steel products, which are expected to be updated in the second half of the year. Finally, I would like to highlight the increase in our ownership stake in Dona Francisca Energética, which has raised our self-generated energy to more than 50% of Gerdau's consumption in Brazil. This move helps boost the competitiveness of our operations in Brazil and is in line with our previously announced decarbonization strategy. I will now turn the floor over to Japur, who will detail the financial highlights and the impact of the current environment on our results. And I will come back to you after that. Japur, over to you.
All right. Thank you, Gustavo. Good afternoon, everyone. And I'd like to extend a good morning to those of you who haven't yet had lunch. So good day to everyone. Let's start talking about our operating results. Our adjusted EBITDA consolidated was BRL 3.4 billion in this quarter, posting growth compared to both the previous quarter and the same period last year. And with this, we are getting to our very best consolidated EBITDA since Q3 '23. Gerdau's adjusted net income also posted a substantial increase of 45% quarter-on-quarter, reaching BRL 1.5 billion, reinforcing the company's ability to translate operating gains of our business into returns for our shareholders. Therefore, based on these results, Gerdau S.A. will distribute dividends of BRL 0.23 per share, while Metalúrgica Gerdau will distribute BRL 0.11 per share. We also continue to make progress on our share buyback program of Gerdau S.A., which is now 31% complete at the closing of Q2.
Now speaking a little about our financial discipline. It is important to highlight and stress that our financial discipline remains a priority. We ended the quarter maintaining a very solid balance sheet position, with low leverage with debt over EBITDA ratio of 0.69x in the last 12 months. This quarter, we maintained a positive free cash flow of BRL 237 million. You might claim that it was just too little a timid generation, but we have to put this free cash flow generation into context, considering the typical seasonality of our business. If we compare the first half of 2026 and how much free cash flow we generated comparing with the same period last year, first half of 2025, in 2026 we generated an additional BRL 2.3 billion in cash flow. And this was mainly driven by both the growth in EBITDA driven by the North American operation, as Gustavo mentioned earlier, and the reduction in our CapEx investments in accordance with the guidance that we released and communicated last year.
Talking about CapEx. From a strategic perspective, we are nearing the start of operations for major projects that will enhance Gerdau's structural competitiveness, particularly in our Brazilian operation. Regarding the mining expansion at Miguel Burnier, we continue to make progress in line with the updated schedule that we released in our last earnings call with the start of operations expected in the third quarter. We are running a lot of equipment tests, and we should start producing ore. We remain confident that we will realize the projected operational and financial benefits of the project in the range of BRL 1 billion and BRL 100 million per year when we are in full ramp-up. In addition to investments made in energy mentioned by Gustavo, we are about to open our new recycling center in Pindamonhangaba. This will increase our competitiveness and reduce our exposure to volatility of this raw material in the long term.
With this, I would like to conclude by reaffirming our culture of always striving for operational and financial discipline, while simultaneously strengthening our competitiveness and allocating capital to initiatives and projects that will shape our future. We understand that we continue to grow, creating value in a sustainable way to our shareholders. I will wrap up here and join you all and Gustavo for the Q&A session.
Thank you, Japur. I would just like to say that in North America, we continue to see steel demand at high levels with a strong order backlog driven by solid consumption in segments such as renewable energy and data centers. One point of attention is the formal review of USMCA, which is the commercial agreement between the U.S., Canada and Mexico. In Brazil, we are seeing signs of more moderate growth in some consumer sectors such as construction and manufacturing, while still facing an excessive influx of imported steel in the local market. This unfair scenario of imports continues to affect the profitability of our operations in the country. And in this regard, we continue to invest in initiatives that strengthen the competitiveness and profitability of our assets. Well, I'll now turn the floor over to Ariana, and Japur and I will be available from now on to answer your questions.
Thank you, Gustavo and Japur. We will now initiate the Q&A session. Our first question comes from Rafael Barcellos with Bradesco.
Questions and answers
My first question is about a very hot topic with investors, which is the outlook for the next quarter in the U.S. You mentioned margin maintenance, whereas most of the market expected additional expansion, given all of the price increases we've seen in the U.S. market. Having said that, could you please give us an idea of cycles in the U.S.? How are you seeing the cycles operating in the U.S. market? On our side, we see that the beginning of structure still in the U.S., that's something that is coming quite strong. That draws our attention towards being more stable. I just want to know whether there is something that is nonrecurring. I know that you had the maintenance shutdown in Midlothian. I just want to know how relevant that is or whether that can explain this more moderate outlook. And if you allow me a second question, we are also looking at the Mexican market and that market is very strong, especially in the last few months. I remember that in the past, you mentioned a potential investment in the Mexican market. Could you please let us know whether it would make sense to revisit that plan or not? That would be great.
Rafael, to be direct, this is a discussion that Japur, Wang and I have had in the past few days. Let me give you a more qualitative view. Japur, who deals with the numbers, can add additional information. When you look at all of the elements practically, what we see going forward, for the next quarter and taking into account the recent price increases, is a trend of margins going upward. There is no new element or risk that we could anticipate that is not already mapped out by you. We are being more conservative on the macro side. Is there really enough room to expand margins further? Will prices continue to escalate indefinitely? There will be a time when this will hit a ceiling. We can't assume indefinite margin expansion. There should be a sustainable level. When you put everything on the table—price, spread, cost equation, international scrap prices—the raw numbers indicate margin expansion.
But we are being more conservative and realistic. We will have a maintenance shutdown at the Midlothian plant, but it will be in the melting part. We have a very good billet inventory. So when it comes to shipments and the way we serve the market, everything is according to plan. We do not anticipate any drop in shipments. Regarding the Mexican market and USMCA negotiations, they are moving forward on the technical side but nothing close to a final agreement. Our teams, especially in Mexico, have been talking with the Ministry of Industry and the federal government in Mexico. Topics related to steel and automobiles are being discussed. I don't see expansion of Chinese products entering the U.S. market via Mexico at scale. Therefore, when it comes to local steel production in Mexico and the assurance of automobile production in Mexico, these topics are in the discussion rounds. I don't see additional risk coming our way from USMCA; the way things are going could lead to more positive news rather than negative. I will give the floor to Japur to elaborate further.
Maybe I will repeat some of the points mentioned by Gustavo, but I'll do it in bullet points. First, when we think about the market, shipments and price, we don't see any loss in volume due to the Midlothian stoppage. We will continue to serve our customers, so we are not anticipating any lack of supply to our current customers. On prices, we might have been a bit more conservative because there have been some price increases recently in North America. We still need more visibility about prices in terms of them being effectively put into force. Half of our portfolio is earmarked to the distribution market where price changes occur more rapidly, but there are segments like industrial and manufacturing where the speed of implementing prices is different. Regarding the Midlothian maintenance shutdown, there is an accounting impact but no cash impact. When equipment is down for a few days, there is some idleness in our lines and we have to allocate fixed costs directly to COGS because we were not producing semifinished steel during that period.
This impacts margins a bit, but it does not hamper unit economics or the order book perspectives going forward. The metallic spread has been expanding and scrap prices are not hurt. This quarter there was an important downtime in our largest unit in North America. We should consider the glass half full because we are making investments to generate higher volumes in our main plant and market. At the end of the day, what matters is the long-term return from our investment in a market where we have the largest cash generation.
Perfect. If you allow me, two other very quick follow-ups. Japur, I understand that when it comes to cost, it was not necessarily Midlothian that impacted cost, but just natural inflation coming from energy costs that we see in the market in different industries. So Midlothian is not so heavy in terms of cost. And then my second follow-up would be to Werneck.
In terms of cycle sustainability, the peak may be getting close to its potential to increase metallic spread and profitability. But even if you go forward to 2027, the cycle can be defined by the factors we want. The main elements that led to such a relevant backlog will continue to be present. Data centers, for instance, have a very strong backlog. Even though there were debates in some states about licenses due to energy and water concerns, there is no robust initiative stopping the construction of new data centers. This is a path of no return. So the backlog for this sector is quite strong. Renewable energy remains strong as well. Looking ahead to the next quarters, it doesn't seem to us that there is any imminent risk that could lead to a drastic reduction in our backlog or shipments.
We do see a one-off impact of the downtime on cost for the quarter due to idleness in the melt shop. All of the electricity costs, take-or-pay gas and employees that work in the melt shop had to be allocated to the quarter without production, so this puts a burden on cost for the quarter. This is a temporary, nonrecurring effect and we believe it will be around BRL 100 million to BRL 150 million. We may be conservative given other market aspects. There were other inflationary impacts throughout the second quarter, like freight. On average, freight expenses in North America increased about 8.5% compared to the first quarter, mostly due to fuel issues related to conflicts in the Middle East. We believe these effects will remain going forward. But the idleness effect is the main nonrecurring driver.
Next question from Caio Greiner with UBS.
I'd like to have a quick follow-up to Rafael's before I ask my own. Japur, let me know if I understood you correctly. You are not yet considering the implementation of the two latest price increase announcements that you had — that you made last week and this week. Is this correct? So we could expect expansion?
You're correct. We haven't yet fully considered these two price increases in special steel and beams that happened last Friday and this week. We are following our competitors. The July increase was not retroactive; it has an effective date during August. It will not have full effect across our portfolio immediately given different channels and segments. So it's not fully captured in our outlook. There is an upside risk which is not negligible in this outlook.
Okay, clear. Now, let me move to my two questions. One is about capital allocation and the other about Miguel Burnier. First, capital allocation: Japur, you drew my attention to net debt close to BRL 8 billion now in Q2, and your target of having net debt over EBITDA close to 1x. Your EBITDA for this year 12.5%, 13% for next year 13%, 14%. It seems your net debt is at a very conservative level. So I'd like to understand how you're thinking about capital allocation and indebtedness. If this target ratio of 1x should still make sense to us. And if that is the case, how do you intend to releverage the company to reach that target? That's number one. Second question about Miguel Burnier. You mentioned the start-up and ramp-up process. The iron ore market is more under pressure and prices have dropped a lot. I'd like to understand the economics of Miguel Burnier for 2027. Do you have any updates on EBITDA generation and whether in 2027 we should see the operations running in full steam or whether the account or the calculation changes?
Starting with capital allocation: a slight correction. Our formal policy says the limit of leverage is 1.5x, but in practice we feel uncomfortable being above 1x net debt over EBITDA. Please keep in mind that this is a limit, not a target. We are not in a hurry to increase leverage just to reach 1x. With the reduction in CapEx disbursement and EBITDA expansion, we have free cash flow generation to equity greater than before, which is translating into more dividend payout, more share buybacks and a reduction in net debt, not just by reducing net debt but by expanding EBITDA. The EBITDA factor is our preference. We had significant consumption of working capital this quarter, both because of price increases in the United States and price changes here in Brazil. We expect free cash flow release in Q3 and Q4 due to typical seasonality. Also, due to the Midlothian downtime we accumulated inventory of finished and semi-finished goods, and when we finish selling those inventories we'll have working capital release.
We maintain our preference to continue to remunerate shareholders via dividends and share buybacks. Regarding Miguel Burnier: our estimates used a benchmark iron ore price close to $90 per tonne—not the $105–$110 levels we saw earlier. There might be adjustments, but I am more focused on executing the ramp-up well to deliver the costs we projected—about $30 per tonne of cash cost delivered at the Ouro Branco unit. We are focused on execution and operational discipline rather than international price. We have not yet sold the ore; our main focus is the ramp-up. If everything unfolds according to schedule, we should complete ramp-up by year-end or start of next year and enjoy the full benefit in 2027, if we deliver the costs proposed.
Next question from Caio Ribeiro with Bank of America.
My first question goes back to capital allocation. I'd like to explore with you the analysis of new projects. What is your priority order today? What is the timing for the approval of new projects? How should we think about the CapEx trend looking forward, particularly comparing maintenance CapEx and expansion CapEx? Secondly, looking at lead times in the U.S., they continue at very high levels despite price increases of long steel that you and other competitors have been announcing. This suggests demand is becoming more inelastic. I'd like to explore how significant the data center component is for you, both directly and indirectly, considering related investments. What growth do you expect in the future? And whether the order backlog should change if you see a risk of metal spread contraction given increased imports and the rising price spread between the U.S. domestic market and the external market. These are my questions.
Thank you for the great questions. On capital allocation, I'll pass to Japur for a full answer but let me add some perspective. If there is no significant change in our outlook, we will continue to invest at CapEx levels we consider healthy, most likely current levels. Big themes: maintenance of blast furnace 1 in Ouro Branco and coking—perhaps we won't need a CapEx peak to deal with that because we have technical alternatives to increase the lifespan of coke plants and the blast furnace. We have been learning to operate integrated mills better, which helps postpone downtime. Eventually we will have to stop Ouro Branco for maintenance and build billet inventories so we won't impact the market. The postponement will allow dilution of CapEx in the future. In the U.S., we had a transformational process in Brazil many years ago with divestitures and investments; now we are reaping fruits of work done in recent years, and the current administration created opportunities we were prepared for.
With the Midlothian downtime completed, we'll analyze the next steps in the U.S. but are not consolidating anything now. In Brazil, we'll continue a transformation similar to what we did in the U.S. The need for CapEx to build new plants or reforms will come in coming years but diluted over time so we do not create unexpected CapEx peaks or excessive leverage. Large civil and electromechanical assemblies are difficult in Brazil, which is part of the challenge. I'll turn to Japur for further comments about capital allocation and lead times.
We had our guidance of about BRL 4.7 billion for CapEx and our pace of disbursement is slightly below guidance. Given the focus on Brazilian operations and optimizations, and the extension of asset lifespan in Ouro Branco, we might have room to reduce maintenance CapEx guidance of around BRL 3 billion per annum. If we do reduce maintenance CapEx, the difference will not be used to reduce net debt or solely to remunerate shareholders—we expect to reinvest in competitiveness in Brazil, Latin America and North America. So total CapEx guidance might move closer to BRL 4 billion in coming years from BRL 4.7 billion, with reductions mainly in maintenance and reallocations to productivity and competitiveness projects. Regarding the U.S., I wouldn't say demand is inelastic, but metal construction is a superior solution in speed and delivery, especially for data centers and hyperscalers. We're at an unprecedented moment with robust demand for metal construction in North America.
Next question from Henrique Marques with Goldman Sachs.
I would like to change gears and focus on Brazil. In your outlook you talked about margin expansion for Brazil but with flat prices. Considering the cost lag we usually see in this industry, I had understood that there was already some kind of increase coming in the third quarter. Is there any initiative to offset the higher cost of raw material that should have been already contracted? What is the main driver that will lead to margin expansion in Brazil? My second question: looking at the long-term Brazil strategy, last time you talked about changing the way you operate in Brazil and anticipated more radical changes compared to the U.S. But given the current demand situation in Brazil—imports increasing, domestic demand slowing, and competitiveness issues—while the U.S. market is very strong, what should we expect from these changes? Is there room to rethink your footprint in Brazil or to expand capacity in the U.S.? Do you have any structural targets for Brazil?
Henrique, when you look at the problems in Brazil—imported goods, energy prices, geopolitical issues affecting exports—we are looking at a long-term landscape where internal competition and imports may remain high. We cannot design Gerdau expecting imports to fall back to very low levels. We are working toward making Gerdau competitive in Brazil under tougher scenarios. We recently announced an adjustment in Recife related to capacity in that mill: we will no longer produce certain road products there and are aligning our footprint with current demand. We are working diligently on a transformation plan and in a few months we will present this plan more clearly. We are considering a future scenario for Brazil that is tougher than today. If trade defense mechanisms like antidumping improve and if there is consolidation, we may benefit. But we will have to compete more intensively in Brazil than in the past. Miguel Burnier is an example of moves we are making. We continue to evaluate the right path.
Henrique, we don't see effective improvement in unit prices in Brazil yet. However, we see a better sales mix with some recovery in heavy vehicles, which is important to our Special Steels division. From Q1 to Q2 we saw mix improvement with higher shipments in the domestic market. If Q3 has four more business days versus Q2, we could see productivity and numbers improve. Given tight margins in Brazil, these minor mix and calendar effects are meaningful. In the fourth quarter, we will see cost reduction effects in Ouro Branco due to the ramp-up of our Miguel Burnier expansion. We are diligent on cost work. Our confidence also comes from the antidumping investigations into hot-rolled coils from China; we expect returns at the end of August and potential measures by year-end, which could improve domestic competitiveness. In the long term, with the expansion at Miguel Burnier, access to more competitive raw materials, and a state-of-the-art rolling mill, we expect competitive gains that will lead to the desired results.
If we look at projects—Miguel Burnier, scrap processing in Pindamonhangaba, and the Midlothian expansion—we estimate around BRL 1.4–1.5 billion additional per year when these projects are in full operation. We are working on internal solutions to address low earnings in Brazil rather than relying solely on market price increases. Regarding capital allocation and potential divestitures, it's too soon to talk specifics, perhaps 2027, but when we have available cash generation we will return it to shareholders via dividends or buybacks as appropriate.
Next question from Daniel Sasson with Itaú BBA.
My first question: you said you're being conservative in your margin guidance in the U.S. because there is room for improvement if price increases are fully implemented. Is there anything else, in addition to metal spread, that could concern you going into the third quarter—higher fuel prices in the U.S., freight impact, or things sometimes not captured in guidance in relation to metal spread? Still on the U.S., you talked about inventory to accommodate the Midlothian downtime. Do you have any figure or range of figures in terms of the effective cost given the idleness we should anticipate for the third quarter? My second question refers to capital allocation and CapEx. You said you were running slightly below the BRL 4.7 billion guidance for this year. Fifty-five percent of your CapEx is denominated in U.S. dollars, which probably helps explain it. Going forward, you indicated that maintenance CapEx of BRL 3 billion per year could be slightly lower. Does it make sense to keep BRL 4–4.5 billion in mind for next year? Or has anything changed?
On short-term risks: inflation is felt everywhere, from consumer goods to freight and energy, and that has implications in the business. But we don't see an unmanaged operational risk. To manage Midlothian downtime we increased inventory levels somewhat above previous assumptions to ensure product availability. This issue is closely monitored. We believe the risk is well managed. Regarding anything not yet mapped out, I don't think so; we have laid out the elements and are managing them.
We estimate around BRL 150 million of idleness related to the Midlothian downtime; this is OpEx, not CapEx. Regarding CapEx, we believe there is still room to reduce the BRL 4.7 billion guidance somewhat—perhaps to BRL 4.5 billion. But we don't expect a much lower number because reductions in maintenance would likely be reinvested in productivity and competitiveness projects for Brazil and North America. We are growing shipments in North America quarter-over-quarter at double-digit rates, which supports higher margins and justifies continued investment in downstream there.
Next question from Gabriel Barra with Citibank.
Two points. First, you mentioned projects that are building blocks for EBITDA next year, including Ouro Branco. Looking at volumes, we haven't seen volumes effectively impacting earnings yet. How is Ouro Branco evolving and how is it helping EBITDA and EBITDA margin so we can understand the impact next year? Second, on capital allocation: with lower CapEx next year and potential divestitures of assets, how should we think about cash generation, dividends and buybacks next year?
Gabriel, Ouro Branco is a relevant building block to be resolved. Ore and coke plants are stable, but there's a structural issue: Ouro Branco was historically geared for exports and used surplus capacity to produce semifinished goods for other mills in demand peaks. Today there are fewer opportunities to export, so we need to decide how to address the mismatch between crude production and rolled products. We will need alternatives in coming years. An integrated mill with two blast furnaces that is not fully producing dilutes fixed costs and does not work well under lower domestic demand. We are debating internally how to reallocate that volume to alternatives that bring greater profitability.
To continue Gustavo's answer: we had the startup of our HRC mill in Ouro Branco at a difficult time and faced imported material that lowered domestic prices. We have confidence in the technical work around antidumping measures against hot-rolled coils from China, and we expect decisions by year-end. We believe long-term improvements in the Brazilian operation will come from replacing volumes previously exported, directing them to the domestic market with better margins. Competitors in flat steel are not having strong margins, but with Miguel Burnier, improved raw materials and a state-of-the-art rolling mill, we expect competitive gains next year. Regarding the magnitude of benefit from projects: Miguel Burnier, Pindamonhangaba scrap processing, and Midlothian expansion could potentially generate about BRL 1.4–1.5 billion additional per year when in full operation. As for cash generation and capital allocation, it's too early to provide specifics on divestitures, perhaps 2027, but historically when we have available cash we return it to shareholders via dividends and buybacks.
Just a quick point and please correct me if I missed something. You spoke about a one-time ratio. You feel comfortable below 1x. Is there any floor of leverage that should guide us in the next year given cash generation and potential dividends and buybacks?
Structurally we don't aim to be a net cash company. With real interest rates in Brazil, holding excessive cash would be excessively conservative. Today we have accumulated losses since the second half of last year in Brazil and are not generating tax profits there, which leads us to be cautious about increasing leverage. Last year we increased dividend payouts and buybacks even though free cash flow was limited, and that increased leverage. We prefer not to repeat that path. We prefer a deleveraged balance sheet, particularly given the interest rate environment.
Last question from Leonardo Correa with BTG Pactual.
Quick questions. Regarding USMCA: five or six months ago the big risk for the U.S. operation was an order down due to USMCA and more volume from Mexico and Canada. Negotiations started with Canada and Mexico; it seems conversations for steel are better than expected. Does that mean the risk is a lot lower than months ago or is it too soon? Second, we've discussed the ZIP code effect at Gerdau and the possibility of unlocking value. That discussion slowed down given the valuation gap between assets. Is there anything being discussed now or is it still not under active consideration?
On USMCA: nothing is linear. Today, no one is calling us to discuss USMCA in the U.S. and Canada, but we are involved heavily in Mexico. The conversations are on a technical level that hasn't happened before. The debate is about whether the melting pool should be cast in Mexico or the U.S. Regardless, I believe possible changes in USMCA can benefit us. We are very involved with Mexico—participating practically every week. On the U.S. and Canada side there hasn't been an invitation to participate recently, and I think the U.S. has other priorities in the negotiation. I view the risk as more controlled than before. Regarding ZIP code or corporate restructurings, I'll let Japur comment.
We are always evaluating opportunities in our corporate structure, both visible and less visible to the market. We made a significant change last year in Spain to give us more flexibility to distribute dividends without withholding tax, which was important. But today we do not have any action plan or active study to implement a major corporate structure change, relisting, spin-off or carve-out of our North American assets.
I'd like to thank you. Ari, over to you.
We just concluded the Q&A session. Questions that were not answered, our IR team will be available to answer further. Thank you all very much. Very briefly, as Leo said, everybody is probably hungry so we're not going to hold you any further. On behalf of all of us, I would like to thank you for joining us, and I would like to invite you for our next earnings release presentation related to the third quarter of 2026 on October 27. Thank you so much. I wish you the best, and take care.