Gerdau 2Q26: North America Delivers, Brazil Starts to Turn

Stronger earnings and credit metrics reinforce the credit, but tight spreads keep us Neutral

We maintain our Neutral recommendation on Gerdau and view the GGBRBZ 5.750% 2035 notes as the preferred expression of the credit. 2Q26 leaves us with an issuer that improved on nearly every metric we track and a curve that has already absorbed much of that improvement. Gross leverage of 1.32x, net leverage of 0.85x, FFO to gross debt of 57.6% and R$9.94 billion of liquidity against R$1.11 billion of short-term debt place Gerdau at the stronger end of the BBB category, while 2026 capex is running slightly below the R$4.7 billion plan. We stay Neutral because the constraint is price, not credit. At 138 bps OAS, the 2035s plot essentially on the duration-adjusted U.S. BBB curve, leaving little if any incremental spread compensation for Brazil risk.

We think that positioning is defensible but leaves little in reserve. North America generated roughly 74% of LTM adjusted EBITDA against 53% of gross debt denominated in U.S. dollars, providing a meaningful natural hedge and an earnings base that is substantially less exposed to Brazilian steel pricing. The 2035s trade approximately 54 bps inside the Brazil 2033 sovereign with about a year more duration, and we do not treat the sovereign as a valuation floor for an issuer with this earnings mix. The practical consequence for bondholders, in our view, is that near-term earnings sensitivity is now more heavily tied to U.S. steel spreads, Section 232 and the U.S. investment cycle, while Brazil remains the main source of potential incremental recovery rather than the current earnings anchor.