Brazil’s earnings outlook points to sharp sector divide
Ricardo Peretti
Rogerio Vieira/Valor
Brazil’s second-quarter earnings season is shaping up as a sharply divided one. Commodity exporters, particularly oil producers, are expected to deliver robust results, while companies exposed to the domestic economy are likely to lose momentum under pressure from macroeconomic uncertainty.
Santander projects revenue growth of about 10% among the companies it covers, with EBITDA rising 23% and net income increasing 20%. Investment platform XP is similarly optimistic, forecasting gains of 9.9% in revenue, 20.5% in EBITDA and 19.8% in earnings for the roughly 140 companies it tracks.
Itaú BBA expects revenue to rise 9.4% and earnings to grow 12.1%, while Bank of America forecasts increases of 14% in revenue, 32% in EBITDA and 21% in net income.
Despite the strong aggregate figures, the prevailing market mood is cautious.
“We still see an earnings season with resilient, somewhat more neutral figures, but with signs of a sequential slowdown from one quarter to the next,” said Ricardo Peretti, an equity strategist at Santander Brasil. “The surge in oil prices and higher input costs are likely to hit domestically focused companies.”
“We expect a volatile earnings season. Some companies will surprise, but the current environment of high Selic [benchmark] rates and conflict is becoming challenging for businesses,” said Jerson Zanlorenzi, head of equities and derivatives trading at BTG Pactual.
Zanlorenzi said the macroeconomic backdrop would lead to wider dispersion in corporate results, requiring investors to pay closer attention to the specific circumstances of each company.
Commodity boost
Unlike previous quarters, when domestically oriented companies were the main highlight, commodity exporters are expected to drive earnings growth this time. Oil and gas producers are likely to stand out, supported by higher prices amid tensions affecting global shipping routes.
With Brent crude averaging about $97 a barrel as conflicts in the Middle East keep prices elevated, exploration and production companies are poised to report particularly strong results. Prio and Petrobras are the top picks for BTG Pactual and XP.
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Fuel distributors including Vibra Energia and Ultrapar also benefited from domestic prices remaining below import parity, allowing them to generate strong margins.
Among other exporters, J.P. Morgan and BTG favor steelmakers, especially Gerdau. The sector has benefited from antidumping measures and pricing power that should offset cost inflation. Usiminas, which reports its results on Friday, July 31, is also expected to post solid figures.
Mining companies such as Vale, by contrast, are likely to face higher costs and lower realized prices, offsetting otherwise robust operating performance during the quarter.
The pulp and paper sector, particularly Suzano and Klabin, is expected to be hurt by the stronger real and maintenance shutdowns over the past three months.
WEG, which released its second-quarter results last week, surprised the market positively. Better cost management helped the company offset weaker revenue growth and improve margins. In a recent interview with Valor, Chief Financial Officer André Rodrigues maintained an upbeat outlook despite the impact of tariffs.
Domestic slowdown
The outlook is more cautious for sectors dependent on the local economy. Peretti said investors would focus closely on companies’ “pricing power.”
“There has been a marginal slowdown on the domestic side because of freight costs and other inputs,” he said. “Many of these companies will lose some of that pricing power.”
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Retail is expected to show a clear divide. The World Cup provided a positive catalyst for companies such as Grupo SBF, while Smart Fit, RD Saúde and Panvel continue to benefit from resilient demand.
Natura, Grupo Mateus and Vivara, however, are expected to report weaker figures. Zanlorenzi said the results of “apparel retailers are likely to be more challenging.”
Among homebuilders, companies serving lower-income buyers continued to deliver solid operating performance, supported by the Minha Casa, Minha Vida federal housing program. Analysts expect that strength to translate into robust financial results.
Companies focused on middle- and higher-income buyers, however, may disappoint as elevated interest rates weigh directly on demand.
Health care
In health care, insurer Bradsaúde and laboratory group Fleury are expected to be the main positive highlights, supported by controlled claims ratios and resilient operations.
Rede D’Or may report a decline in hospital occupancy, while Hapvida and Qualicorp are likely to be affected by membership losses.
With student enrollment having little impact on the second quarter, investors will focus primarily on profitability among education companies.
Traditional distance-learning programs continue to lose momentum, while in-person and hybrid models support higher average tuition. Cogna and Vitru are expected to stand out, while Yduqs and Ânima are likely to report weaker quarterly figures.
Cautious guidance
Analysts noted that companies had already adopted a more cautious tone during first-quarter conference calls. While the reported figures will remain important, investors are likely to pay particularly close attention to forecasts and targets for the second half of the year.
“The numbers matter, and the market always prices in the results, but the message from companies will be essential,” Peretti said. “They had already become more cautious, and I believe they will maintain that tone throughout the earnings calls.”
“What will draw investors’ attention is the discussion about the macroeconomic environment, interest rates and the exchange rate, all of which will affect performance going forward, as well as cost projections,” Zanlorenzi said. “Debate about the elections should remain in the background. We will only have a clearer picture toward the end of the third quarter.”
