The earnings season of listed companies delivered some relief after a second quarter marked by an unexpected event: the truckers’ strike. The strike practically shut down the country for ten days in late May, on the eve of the quarter’s final month. But the aggregate net profit of companies still rose 19% compared with the same period of last year.
The profit uptick is related to the economic recovery, even if a slow one, the real’s devaluation that benefits exporters and a weak comparison basis. The second quarter of 2017 was affected by the release of a recording of President Michel Temer and JBS shareholder Joesley Batista. The political turbulence generated at the time pushed market bellwether Ibovespa to an 8.8% drop on May 18, 2017.
A Valor Data survey based on data from 257 listed non-financial companies showed an R$11 billion net income attributable to shareholders in the second quarter. The study excludes data from Petrobras and Oi, whose profits had the biggest absolute variation from the amounts of the second quarter of 2017, as well as financial companies. When Petrobras and Oi are included, the profit growth reaches 264.4%.
Unlike last year, companies found a less hostile macroeconomic environment despite the truckers’ strike and the usual effects of a World Cup year. The Central Bank Economic Activity Index (IBC-Br), a leading indicator of GDP performance, rose 0.84% in the second quarter year-on-year. In the same period of last year, it had fallen an unadjusted 0.22%.
The Valor Data survey shows the aggregate operating profit of listed companies rising 47% thanks to the combination of two factors: the 16% increase of net revenue and only 1% in operating expenses in the period. The good news from the expense line is that its growth stemmed mostly from sales than administrative costs – 9% and 1.6%, respectively. The costs of products and services rose 15%, but retreated 0.8 percentage point compared to revenues. Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 29.6%.
“The strike was an unexpected event. But business earnings generally were compatible with the country’s economic growth moment,” says Paola Bonoldi, co-manager of equities at Genial Investimentos, a subsidiary of the Brasil Plural group.
The real’s 15% devaluation against the dollar in the quarter was another earnings driver, especially for commodities exporters. “Those companies had bigger cash generation, with more revenue in dollars than financial expenses in dollars. But revenues are adjusted over time, while you mark down debt at once,” says Karel Luketic, chief analyst with XP Investimentos.
On the one hand, the exchange rate helped revenues, but on the other, it penalized the financial side, especially of companies indebted in US dollars. Net financial expenses rose 74.2% in the second quarter compared with the same period of last year.
Analysts already expected the impact of the strike, World Cup, and the exchange rate, but believe it may have curbed a more significant gain in the period.
Brewery Ambev, for instance, underlined that without the strike its beer sales would have grown 4% instead of the 1.7% reported. Retailer Lojas Renner also estimated that same-store sales – at units operating for more than one year – would have increased 5% without the strike, but they only advanced 2.5%. Same-store sales at Lojas Marisa would have risen 0.2% instead of dropping 2.6%.
The strike also blocked steelmakers from raising prices, something they made now in the third quarter. Usiminas says the industry lost R$1.8 billion.
The strike had a direct impact on sales of exporting companies, which otherwise benefited from the weaker real. Fibria missed out on selling 100,000 tonnes, while Klabin saw its sales volume drop 13%.
Fuel distributors had an even more significant impact. BR Distribuidora lost R$200 million adjusting diesel inventories, while Ultrapar lost R$213 million.
Despite the adverse events, the second quarter also had a second positive factor: lower indebtedness. In addition to base interest rate Selic falling to 6.5%, the lowest level since the inflation-targeting regime was adopted in 1999, the aggregate leverage of companies, as measured by the net-debt-to-EBITDA ratio, fell to 2.02 times from 2.28.
Aside from the lower interest rates, Ms. Bonoldi underscores how some companies used their strategies to deleverage, like selling assets. “Operating [earnings] were better, but companies did their homework.”
In the first six months of the year, the 257 companies evaluated by Valor Data had 1.2% growth in net profit and 13.3% growth in revenues.
Analysts expect business earnings to keep improving in the second half. However, they warn about the profound uncertainty caused by the presidential election, which could affect business and investor confidence. “Everything indicates we should see an improvement compared with the second quarter. There is a recovery tone that helps, but the sustainability of this movement [of improvement] has to involve a more positive electoral scenario,” Mr. Luketic says.
Source: Valor InternationalRead less