Brazil’s Natura profit slumps 35%; stock crashes 27.5% after weak Q4

Natura, the Brazilian cosmetics giant, revealed its quarterly earnings report on Thursday showing disappointing data and causing concerns in the financial sector.

Key data, particularly those related to core operations, came in considerably below analysts’ expectations.

Natura reported a 16.1% increase in net revenue to R$7.7 billion, with an 11.4% increase excluding Argentina and a 63.1% increase in reais.

The company attributed this growth to 21.1% growth in Brazil, double-digit growth in Hispanic markets (excluding Argentina), Avon CFT’s stable performance in Brazil, and continued decline in Avon’s Hispanic markets (excluding Argentina) and the Home & Style category.

Although faced with tough times presently, with perseverance Natura hopes that future periods will yield a return to form and the prosperity of years past.

Disappointing operational performance

Natura reported adjusted EBITDA (profits before interest, taxes, depreciation, and amortization) that was up to 35% lower than market expectations.

According to local media outlet InfoMoney, this sharp difference caught investors off guard, as they had expected more robust growth from one of Brazil’s largest beauty and personal care companies.

The gap in operational performance is mostly due to a significant increase in expenses.

Despite these difficulties, Natura remains hopeful about its net sales expectations.

The company has confirmed its revenue growth trajectory, but an increase in operational costs has dampened this optimism, resulting in overall dismal results.

Analysts note that even after accounting for earlier Information Technology expenditures and capitalized systems, rising expenses were a substantial contributor to the poor performance.

Market Reaction and Share Price Drop

When the financial results were made public, the stock market responded strongly.

At 11:23 a.m., Natura&Co shares fell 27.51% to R$9.83.

The shares fell considerably lower, reaching R$9.66, the lowest price since January 2023.

This reduction resulted in a startling loss of about R$5.4 billion in market value.

If this precipitous decline continues until the market closes, it will be the greatest one-day percentage drop in Natura’s operational history.

In contrast, the broader market was going positively; the Ibovespa index increased by 1.52% on the same day, demonstrating a significant discrepancy between Natura’s performance and market mood.

Earnings per share and tax gains

The report provides adjusted earnings per share (EPS) of R$0.17, which is a modest improvement from the previous year’s losses of -R$0.37.

While this increase implies some improvement, it still falls short of the consensus forecast of R$0.24 per share.

JPMorgan noted to InfoMoney that, while the EPS exceeded their previous forecast of R$0.11, the financial measures nevertheless fell short of market expectations.

The company also benefited from tax advantages and positive hedging operations on financial charges, which helped to offset the impact of increased operational costs.

However, greater foreign exchange charges due to financial expenses highlight Natura’s concerns in an increasingly complex economic landscape.

Strategic reassessment ahead

With the dismal fourth-quarter returns coming as a huge surprise, trade analysts might urge Natura to re-examine their functional approach.

In view of ascendant expenditures, one option for the company may be to delve into cost-cutting tactics or imaginative avenues to optimize outlay without detriment to development.

Natura’s competence in navigating this intricate terrain will be integral for restoring investor belief and confirming sustainable development in the approaching quarters.

Alternatively, the company may consider focusing resources on their most profitable products or explore partnerships with complementary businesses to expand its portfolio and revenue streams.

A careful re-evaluation of their strategic priorities coupled with financial austerity measures could help Natura weather ongoing challenges.

A crossroads for Natura

In summary, Natura’s fourth quarter results delivered unwelcome surprises for shareholders but also signalled a potential inflexion point.

Soaring costs and missed targets could spur strategic shifts.

Moving ahead, how Natura tackles these challenges will determine the restoration of growth and sustaining leadership status in cosmetics.

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