Gerdau S.A. (GGB) Cash Flow Statement

The OCF/NI ratio has been highly volatile, ranging from 0.41 in 2024Q1 to 8.82 in 2024Q4, indicating that cash conversion is heavily influenced by working capital swings rather than steady earnings quality. In 2025Q4, a net loss of -$1.3B was accompanied by positive operating cash flow of $3.1B, driven by a $1.9B working capital release, which may not be sustainable. Investors should monitor whether future cash generation aligns more closely with net income as the steel cycle stabilizes.

The FCF trajectory shows a sharp recovery from the negative prints in early 2025, but the most recent quarter's FCF margin of 2.4% is well below the 23.8% seen in 2024Q3, suggesting the rebound is not yet robust. Capital expenditures have remained elevated, consuming a significant portion of operating cash flow, which may limit FCF growth if revenue softens. The cyclical nature of steel pricing suggests that FCF margins will likely remain volatile, and the current level may not represent a new norm.

Gerdau's capital expenditure intensity remains high, with CapEx averaging around 8-9% of revenue, which is typical for integrated steelmakers but limits free cash flow conversion. The consistent CapEx levels suggest a mix of maintenance and growth spending, though the breakdown is not disclosed. Given the cyclical downturn in steel prices, the elevated capital spending may strain cash flows if operating margins compress further, warranting close monitoring of management's capital allocation priorities.

The working capital line is the primary driver of quarterly cash flow variability, with large swings in both directions. In 2025Q4, a $1.9B positive working capital change boosted operating cash flow, while 2026Q1 saw a -$1.3B drag, illustrating the difficulty in predicting cash generation. This pattern suggests that Gerdau's cash flow is highly sensitive to inventory and receivables management, which may reflect changing demand conditions and pricing power. Investors should expect continued volatility in operating cash flow as the steel cycle evolves.

Gerdau has maintained shareholder returns even during periods of negative free cash flow, such as 2025Q1 when FCF was -$971M but dividends and buybacks totaled $483M. This suggests a commitment to returning capital, but it may be funded by debt or cash reserves, which could increase leverage over time. The 2026Q2 payout ratio relative to FCF is above 100%, indicating that the company is prioritizing distributions over balance sheet flexibility, which may be a concern if the steel cycle deteriorates further.

The substantial cumulative gap between operating cash flow and net income suggests that earnings are being suppressed by non-cash charges and working capital timing, but it also raises questions about the sustainability of such a divergence. The gap may be partly due to large D&A and working capital releases, but it also indicates that reported profitability understates the company's cash-generating ability. However, this divergence could narrow if working capital normalizes, and investors should be cautious about extrapolating the current cash flow strength into future periods.