20-F: Gerdau Faces Profit Decline Amid Brazil Import Surge, North America Shines

Gerdau S.A. reported a significant drop in net income for 2025, primarily due to impairment losses and intense import competition in Brazil, while its North American operations showed strong performance.

Summary

• Net income for 2025 was R$1.4 billion, a 69.2% decrease from R$4.6 billion in 2024, which itself was down 39.0% from R$7.5 billion in 2023.
• Net sales increased by 4.2% to R$69.9 billion in 2025, driven by North America, but gross profit declined by 13.4% to R$7.9 billion.
• The Brazil Segment experienced a 1.8% decrease in net sales and a 51.8% drop in gross profit in 2025, severely impacted by record steel imports (6.4 million tonnes, up 7.4% year-over-year).
• North America Segment net sales grew by 12.1% in 2025, with crude steel production up 11.5% and shipments up 9.4%, benefiting from reinforced tariffs and strong demand from data centers and renewable energy sectors.
• Impairment losses of R$1.96 billion for goodwill and R$1.59 billion for fixed assets were recognized in the Brazil Segment in 2025, reflecting a deterioration in economic conditions and asset utilization.
• Total debt increased to R$14.18 billion in 2025 from R$13.64 billion in 2024, with a nominal weighted average cost of gross debt at CDI 0.21% for BRL and 6.12% for USD.
• The company completed several acquisitions in 2025, including 100% of Gerdau Summit Aos Fundidos e Forjados S.A., Rio do Sangue Energia S.A., Comercial Gerdau Aos Planos Ltda., Paranatinga Energia S.A., and Bradley Steel Processors Inc., expanding its renewable energy and scrap recycling capabilities.
• A new share buyback program was approved on February 23, 2026, to acquire up to 55 million preferred shares and 1.44 million common shares over 18 months.
• The cash conversion cycle improved to 77 days in December 2025 from 85 days in December 2024, due to inventory optimization and Real devaluation.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with a cautious sentiment. While strategic acquisitions and strong performance in North America are positive, the substantial decline in net income and significant impairment losses in Brazil, driven by intense import competition, present considerable headwinds for overall profitability.

Positives

• North America Segment demonstrated strong performance with 12.1% net sales growth, 11.5% crude steel production increase, and 9.4% shipment growth in 2025, driven by favorable pricing and demand from data centers and renewable energy.
• Strategic acquisitions in 2025, including renewable energy assets (Rio do Sangue Energia S.A., Paranatinga Energia S.A.) and increased scrap recycling capacity (Bradley Steel Processors Inc.), align with cost competitiveness and sustainable development goals.
• The company achieved an Ascore in CDP Climate Change for 2025 (2024 base year), reinforcing its commitment to sustainability and climate leadership.
• An investment plan of R$4.7 billion for 2026 was approved, focusing on maintenance and competitiveness, including ESG practices and sustainable development.
• The cash conversion cycle improved by 8 days to 77 days in December 2025, reflecting optimized inventories and efficient working capital management.
• The average gross debt term is well-balanced at 8.5 years, with no outstanding amounts on its US$875 million revolving credit facility, indicating healthy liquidity management.
• Gerdau's GHG emissions average is approximately half of the global steel industry average, positioning it as a leader in decarbonization efforts.

Negatives

• Net income plummeted by 69.2% in 2025 to R$1.4 billion, primarily due to lower operational results and significant impairment losses.
• Gross profit decreased by 13.4% in 2025, indicating margin compression despite increased net sales.
• The Brazil Segment faced a 'fierce competitive local environment' with record steel imports (6.4 million tonnes, up 7.4% YoY), leading to a 1.8% decline in net sales and a 51.8% drop in gross profit for the segment.
• Significant impairment losses totaling R$1.96 billion for goodwill and R$1.59 billion for fixed assets were recognized in the Brazil Segment in 2025, reflecting a challenging economic outlook and asset utilization levels.
• Financial expenses increased by 37.5% in 2025, contributing to the overall decline in profitability.
• The Brazilian government's temporary tariff hike for steel products proved 'insufficient so far' to combat predatory steel imports, negatively impacting Gerdau's competitiveness in the domestic market.
• Workforce reductions were implemented in Brazil throughout 2025 due to increased steel imports, with potential for further restructuring if import levels persist.
• The automotive sector in North America faced challenging dynamics due to Section 232 tariffs and high interest rates, impacting special steel demand.

Risks

• The steel industry is highly cyclical and vulnerable to global economic conditions, demand fluctuations, international prices, and trade policies, which can depress demand and prices.
• Significant portion of operations in North America exposes the company to economic, political, and regulatory changes in those markets, including interest rates, trade policies, and currency fluctuations.
• Global conflicts and sanctions (e.g., Russian invasion of Ukraine, Israel-Gaza conflict) may negatively impact demand, commodity prices, and energy costs, disrupting financial and commodity markets.
• Intense competition from domestic and foreign producers, particularly from heavily subsidized Chinese steel imports, can adversely affect profitability and market share in Brazil.
• Increases in steel scrap, iron ore, coking coal, energy (electricity, natural gas), and CO2 prices, or reductions in supply, could adversely affect production costs and operating margins.
• Projects are subject to risks of increased costs, delays, or failure to obtain necessary equipment, permits, and regulatory approvals, potentially affecting growth and profitability.
• Unexpected equipment failures or unanticipated events (fires, severe weather) may lead to production curtailments or shutdowns, increasing costs and reducing earnings.
• Failure to obtain or renew necessary environmental permits and licenses could lead to delays, increased costs, fines, or suspension of activities.
• Information technology system failures, cyber-attacks, and security breaches could disrupt business, cause production errors, data loss, significant fines, and reputational harm.
• Outbreaks of disease and health epidemics could negatively impact business revenues and operations by disrupting supply chains and reducing demand.
• Estimates of mineral resources are based on interpretations and assumptions, and actual extractable quantities may differ substantially, impacting mining operations.
• Any accident or defect affecting the structural integrity of the Alemes Dam or other mining structures could have severe adverse consequences, including shutdowns, high expenditures, fines, and environmental impacts.
• A downgrade in the company's credit ratings could increase its cost of capital and impair its ability to obtain new financing.
• High levels of indebtedness could limit the ability to raise additional capital, react to economic changes, or meet debt obligations.
• Variations in foreign exchange rates (e.g., BRL vs. USD) may increase the cost of servicing foreign currency-denominated debt and adversely affect financial performance.
• Unfavorable outcomes in numerous tax, environmental, civil, and labor disputes involving significant monetary claims could negatively affect results, cash flows, and financial condition.
• Restrictive trade measures (quotas, tariffs) in steel-importing countries could increase product prices or reduce export ability, while new export taxes in Brazil could also be challenging.
• Stricter environmental regulations, especially related to greenhouse gas emissions and carbon markets (e.g., Brazil's SBCE, EU CBAM, U.S. carbon border adjustment), could increase compliance costs and affect competitiveness.
• Political instability in Brazil, including polarization and uncertainty in government policies, may affect regulatory frameworks, trade relations, and infrastructure investments.
• Inflation and government actions to combat it in Brazil could slow economic growth, reduce demand, increase costs, and hinder access to capital markets.
• Developments and perceptions of risks in other countries, particularly the U.S. and emerging markets, may adversely affect the market prices of Gerdau's shares.
• The interests of the controlling shareholder may conflict with those of non-controlling shareholders.
• Loss of senior management and executives could negatively affect the company's strategy and operations.
• As a foreign issuer, Gerdau is subject to different disclosure and corporate governance requirements than U.S. domestic registrants, potentially offering less protection to shareholders.

Future Outlook

Gerdau's outlook for 2026 remains positive, particularly in the U.S., driven by strong demand in solar energy, data centers, and infrastructure sectors. In Brazil, moderate demand growth is anticipated, with a focus on infrastructure and civil construction. The company will continue to monitor Section 232 tariffs and USMCA negotiations, and remains vigilant regarding the automotive sector and imported vehicles in Brazil. Management plans to invest in modernization, technology updates, and cost reduction initiatives, exploring technological enablers like analytics, AI, and digital twins for greater operational efficiency.

Management Comments

• The company is committed to continuously improving its performance by receiving raw materials and delivering products to its customers of designated ports.
• Gerdau believes that the trade defense measures aimed at strengthening the U.S. industry will influence greater capacity utilization and further improve the competitiveness of the Company’s operations in the U.S.
• Gerdau believes it is one of Latin America’s biggest recyclers and, worldwide, transforms millions of tonnes of scrap metal into steel every year, reinforcing its commitment to sustainable development in the regions where it operates.
• Gerdau's production model and efforts for over a century have placed the Company at the vanguard on the issue of GHG emissions. Currently, we have one of the lowest emission averages in the steel industry, which is equivalent to approximately half of the global industry average.
• The Company aims to be carbon neutral by 2050; for this, disruptive technologies will be necessary in steel production, which are not yet economically and operationally feasible on an industrial scale.

Industry Context

StockSavvy.ai notes that Gerdau's 2025 performance reflects a bifurcated global steel market. While North America benefited from protectionist trade measures (50% Section 232 tariffs) and robust demand from specific sectors like data centers and renewable energy, the Brazilian market suffered from a global oversupply, particularly from China. This highlights the critical impact of regional trade policies and macroeconomic conditions on steel producers. The company's strategic acquisitions in renewable energy and scrap recycling are in line with broader industry trends towards decarbonization and circular economy principles, aiming to enhance cost competitiveness and reduce environmental footprint. The significant impairment losses in Brazil underscore the severe challenges faced by domestic producers against subsidized imports, a trend observed across several emerging markets.

Comparison to Industry Standards

• Gerdau's GHG emissions average is approximately half of the global steel industry average, positioning it as a leader in sustainable steel production compared to global benchmarks.
• The Brazilian steel market's import penetration rate reached 21% in 2025, significantly higher than the average of the last ten years, indicating a less protected market compared to regions like the U.S. where tariffs were increased to 50% to support domestic producers like Nucor Corporation and Steel Dynamics Inc.
• The company's investment in expanding its iron ore production capacity and acquiring renewable energy assets (e.g., Paranatinga Energia S.A.) demonstrates a vertical integration strategy aimed at mitigating raw material and energy price volatility, a common challenge for steel producers globally.

Management Changes

Corporate Governance

Legal Proceedings

• Tax provisions totaled R$1.93 billion as of December 31, 2025, mainly related to ICMS, IPI, Income tax, social contribution, social security contributions, and PIS/COFINS credits.
• Labor provisions amounted to R$326.3 million as of December 31, 2025, covering individual and collective labor lawsuits.
• Civil provisions were R$37.18 million as of December 31, 2025, for lawsuits arising from ordinary operations.
• The company and its subsidiary Gerdau Aos Longos S.A. entered into a Settlement Agreement with CADE on December 30, 2024, to resolve antitrust litigation, committing to pay R$256.1 million to the Fund for the Defense of Diffuse Rights. The settlement for the 2006 action was approved on January 7, 2025.
• Other tax contingencies with possible losses, not provisioned, include R$999.8 million for ICMS, R$571.3 million for IPI, R$172.3 million for social security contributions, R$2.13 billion for PIS/COFINS, R$854.4 million for other taxes, R$1.64 billion for Withholding Income Tax on interest remitted abroad, R$628.5 million for disallowance of goodwill deductibility (2010 restructuring), and R$8.55 billion for disallowance of goodwill deductibility (2004/2005 reorganization).
• Other civil litigation with possible losses, not provisioned, amounts to approximately R$1.01 billion.
• Other labor claims with possible losses, not provisioned, amount to approximately R$1.44 billion.

Related Party Transactions

• Commercial operations with associate companies and joint ventures resulted in net sales of R$(20.2) million in 2025 (R$136.88 million in 2024).
• The company received R$7.57 million from controlling shareholders for the sale of real estate in 2025 (received by December 31, 2025, from a 2024 balance).
• Income from rental agreements with related parties amounted to R$921,000 in 2025.
• Gerdau S.A. holds financial investments in debentures issued by its subsidiaries Gerdau Aos Longos S.A. and Gerdau Aominas S.A., totaling R$4.82 billion in 2025, generating R$110.36 million in financial income.
• Contributions to assistance entities Fundao Gerdau, Instituto Gerdau, and Fundao Ouro Branco totaled R$160.43 million in 2025.
• Key management compensation, including salaries, variable compensation, and benefits, was R$69.45 million in 2025, with social charges of R$15.34 million.

Stakeholder Impact

• Shareholders: Impacted by the significant decline in net income and impairment losses, but also by ongoing share buyback programs and strategic acquisitions aimed at long-term value creation. The controlling shareholder maintains significant influence.
• Employees: Affected by workforce reductions in Brazil due to import competition, but also benefit from long-term incentive plans and pension plans. Management changes include a new Executive Vice-President.
• Customers: Benefit from diversified product offerings and quality management systems. North American customers show strong preference for domestic steel due to tariffs.
• Suppliers: The company's policy of diversifying suppliers and offering debt risk transactions with financial institutions aims to maintain stable relationships.
• Creditors: The company's debt levels and cost of capital are influenced by credit ratings and market conditions, with a well-balanced debt maturity schedule.
• Local Communities: Impacted by mining operations (e.g., Alemes Dam monitoring) and environmental initiatives, as well as social responsibility policies and contributions to assistance entities.
• Regulatory Authorities: The company is subject to extensive environmental, anti-bribery, anti-corruption, and antitrust laws, with ongoing legal proceedings and compliance efforts.

Next Steps

• Continue monitoring new developments in Section 232 tariffs and USMCA negotiations.
• Remain vigilant on the automotive sector, which may be impacted by a prolonged high-interest rate environment and the inflow of imported vehicles in Brazil.
• Implement the R$4.7 billion investment plan for 2026, focusing on maintenance and competitiveness, including ESG practices and sustainable development.
• Streamline production processes and invest in new energy matrices and technologies to achieve carbon neutrality by 2050.
• Continue efforts to identify opportunities for cost reduction across all units.
• Monitor the final procedures for the approval of the settlement decision in the 2003 CADE lawsuit.

Key Dates

Recommendation

Gerdau's 2025 results show a mixed picture. While the North American segment is performing strongly due to favorable market conditions and trade policies, the significant decline in net income and substantial impairment losses in the Brazil segment are concerning. The company's strategic acquisitions in renewable energy and scrap recycling are positive long-term moves, and the ongoing share buyback programs could support share price. However, the persistent challenges in Brazil from import competition and the overall increase in net debt warrant caution. A 'hold' recommendation is appropriate as investors should monitor the effectiveness of trade defense measures in Brazil and the integration of recent acquisitions, balancing the strong performance in North America against the headwinds in its home market.

Keywords

Steel, Brazil, North America, South America, SEC Filing, Annual Report, Financial Results, Net Income, Net Sales, Impairment, Goodwill, Steel Imports, Tariffs, Trade Policy, Raw Materials, Scrap Steel, Iron Ore, Renewable Energy, Acquisitions, Debt, Share Buyback, ESG, Decarbonization, Corporate Governance, Legal Proceedings, Risk Factors