Exporters to be centerpiece in 2Q earnings season

The weakening of the Brazilian real against the dollar and the increase in the price of some of the world’s main commodities likely boosted the results of large Brazilian exporting companies in the second quarter and should turn them into the highlights of the earnings season, which accelerates this week.

After a few quarters moving sideways, companies trading oil, iron ore, and pulp, among other commodities, had their revenues helped by the real’s depreciation over the dollar. The exchange rate returned to a level above R$5 between April and June, at an average of R$5.21, an increase of 5.5% in the year and 5.2% over the first quarter.

The prices of some of the main commodities traded by Brazilian companies also rose during the period. The Brent reference barrel closed the second quarter at an average of $84.64, 8% up in the year and 2% up over the first quarter. Pulp traded in China increased by 27% in the year and 9% over the first three months of 2024, close to $700 per tonne.

“Brazilian pulp and paper manufacturers are expected to post more robust results in the second quarter, reflecting the combination of increasingly higher prices and the depreciation of the real,” said Bank of America’s team of analysts led by Caio Ribeiro. Suzano, with greater exposure to the commodity, should especially benefit from the trend.

In the case of Petrobras, Alejandro Demichelis and Pedro Baptista, analysts at Jefferies, say the company’s numbers will benefit from fewer maintenance stops and a higher refinery utilization rate. The company has not yet released its operational preview for the quarter. That, combined with higher oil prices and the depreciation of the real against the dollar, should generate an EBITDA of $13.7 billion.

Iron ore went in the opposite direction and ended the period at an average of $112 per tonne, practically stable in the annual comparison and 9.7% down compared to the first quarter, amid doubts about the sustainability of China’s iron ore demand.

“We expect mining companies to have increasingly better results over the first quarter, driven by higher seasonal volumes and lower costs more than offsetting lower realized prices,” Santander analysts Yuri Pereira and Arthur Biscuola wrote in a report. Vale and CSN are expected to benefit from this move.

Vale released its operational results for the second quarter, posting production of approximately 81 million tonnes of iron ore and sales of 80 million tonnes. Analysts welcomed the result but warned that lower realized prices could hurt the company’s financial numbers.

On the other direction, steel companies are expected to post weak results. Itaú BBA team of analysts led by Daniel Sasson said that still pressured steel prices due to the entry of Chinese products into the Brazilian market, in addition to a weaker U.S. market, could harm the results of Gerdau, Usiminas, and CSN.

Companhia Brasileira de Alumínio (CBA) could be an outlier, with banks projecting its EBITDA could double in a year, helped by better aluminum prices and reduced production costs.

Companies operating primarily in the domestic market should follow the same trends seen in the first quarter, according to bank analysts. They say it will be key to pay attention to the signal these companies’ executives will give amidst the scenario of high interest rates for longer and household consumption not recovering as expected.

BTG Pactual analysts Luiz Guanais, Gabriel Diselli, and Pedro Lima wrote that the fundamentals of retail companies showed signs of improvement earlier in 2024 and the trend is expected to continue over the next few quarters. However, the bank noted that share moves are driven by political and macroeconomic news.

With the prospect of higher interest rates for longer and its possible effects on consumption, estimates are impacted. “We see little room for a positive review in the estimates this year,” they say. The companies carried out a strong cost rationalization process and benefited from greater revenue generation in the annual comparison.

Companies in the electricity sector could be a positive highlight among domestic companies. In the second quarter, extremely high temperatures in Brazil and the lack of rain boosted power prices—helping energy-generating companies—and consumption—benefiting distributing companies—, said Bradesco BBI analysts Francisco Navarrete, João Fagundes, and André Silveira.

Fuel distributing companies are also expected to post positive results in the quarter, with normalization of inventories boosting their margins, although diesel and gasoline prices are still lagging behind international parity.

Healthcare and education providers tend to post weaker results due to the unfavorable seasonality of the second quarter and the margin recovery process they have been implementing. For health insurance operators and service providers, margin trends will be important to monitor, Bradesco BBI analyst Marcio Osako noted.

Itaú BBA analysts Vinícius Figueiredo, Lucca Generali Marquezini, and Felipe Amancio expect no surprises for education providers and say investor attention should remain focused on the evolution of margins and cash conversion.

Translation: Liliana Hage

Source: Valor International; click here to access this story’s original rendition: https://valorinternational.globo.com/business/news/2024/07/23/exporters-to-be-centerpiece-in-2q-earnings-season.ghtml

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