Lavoro Limited (LVRO) on Q3 2024 Results - Earnings Call Transcript
Operator: Welcome to Lavoro's Fiscal Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded and a replay will be made available on the company's Investor Relations website at ir.lavoroagro.com. I will now turn the conference over to Tigran Karapetian, Head of Investor Relations. Thank you. You may begin. Tigran Karapetian: Thank you for joining us today on Lavoro's fiscal 2024 third quarter earnings conference call for results ended on March 2024. On today's call, our Chief Executive Officer, Ruy Cunha, and Chief Financial Officer, Julian Garrido. The company has provided a supplemental earnings presentation on its Investor Relations website at ir.lavoroagro.com that may be helpful in your analysis of the quarterly performance. Before we begin, please remember that during the course of this call, management will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results and operations and financial position, industry and business trends, business strategy and market growth, among others. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements. Please refer to the company's registration statement on Form F-1, Form 1F for the period end of June 30, 2024, and Form 6-K filed with the SEC today and other reports filed from time to time with the SEC for detailed discussions of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net profit or loss, among others. While the company believes that these non-IFRS financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with the IFRS. Please refer to today's release for reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. I'd now like to turn the call over to Ruy Cunha, CEO. Ruy Cunha: Thank you, Tigran. Good afternoon, and thanks everyone for joining. I'll begin by touching upon the overall business landscape in the broader economic complex of the business. After that, Julian will delve into our financial highlights and I will turn for some concluding remarks. First, highlights of our strategy to-date. For third quarter 2024, the story is broadly consistent with what we have seen so far in our fiscal year. First, we continue to outperform the Brazil retail inputs market. Robust double-digit volume growth led by market share gains helped counterattack, severe input price declines and adverse climate events affecting our industry this year. Our Brazil Ag Retail segment inputs revenue decreased by 7% year-over-year in Brazilian reais in the quarter, and 4% year-to-date as compared to Retail inputs market shrinking by over 25%. Notably, our quarterly sales volumes increased by 20% for crop protection, 34% for fertilizers, 44% for seeds, and 47% for specialty products, significantly outpacing the overall retail markets' growth, which hover in the low to middle-single digits. Second, our gross margins continue to stabilize considering the pronounced seasonality affecting our performance, we find it beneficial to analyze changes in our gross margins on a year-over-year basis. For Brazil Ag Retail, our gross margins on inputs revenues declined by 190 basis points through 12%, compared to 510, decline in second quarter 2024 and a decline of over 1,000 basis points in the first quarter 2024. This is consistent with what we communicated in the previous quarter, namely that as our higher cost inventory cycles over in favor of lower cost replacement inventory, our costs of goods sold gradually catch up in the inputs price decline at the farmgate. Third, our Crop Care segment continued yet again to perform well with revenue and gross profit growing 30% and 14%, respectively, for the quarter. Despite the challenging market conditions for premium specialty products, Agrobiologica, our biological business was a strong contributor with revenue increasing by 57%, driven in part by robust demands for our bioinsecticide products and strong commercial execution, as well as continued cross-selling synergies with our Brazil Ag Retail operations. Crop Care's importance to Lavoro continues to grow in importance, representing 22% of our year-to-date gross profit compared to less than 16% in the prior year period. Fourth, our proactive efforts to recruit seasoned agronomists who are bringing in new clients to our platforms continue to bear fruits. With additional $35 million in future net sales potential from new hires in the quarter, pushing our total for the year to over $150 million potential. As mentioned in the last earnings call, we expect these RTVs to contribute to our results only next year. Our market share growth this year was primarily driven by an increased share of wallets with existing clients. The addition of these new agronomists will enable us to also expand our clientele next year. Now let's talk a little bit about [Technical Difficulty] guidance. Actually, in what has changed leading us to revise our forecast for the year. The Brazilian farmer had a challenging year in this last season. In addition to the meaningful decrease in prices for soy and corn, they had to contend with severe drought caused by El Nino climate, which caused yield losses estimated at 6% for soybean harvests and fears around the shortened safrinha growing season, leading them to downgrade their spend and seed technology selection, which partly led to second corn yields being down by 4%. Farmer profitability, a fundamental driver for our industry, is expected to improve in the upcoming crop year '24-'25. However, in the near term, we continue to observe farmers' behavior in Brazil remaining more risk averse, which is translating to postponement of purchasing decisions closer to the need. While this had been the story for the past year and a half, it did intensify to a greater extent than we had expected. As of the end of April, the retail market bookings curve for the crop year '24-'25 measure as the total farmer purchase orders divided by total expected demand were estimated to be around 17% compared to 27% in April last year. Consequently, a portion of products that we were projecting to ship in first quarter 2024 are being pushed into the next fiscal year, adversely impacting our results for the quarter ahead. This is the first factor driving our guidance revision. The second factor has to do with farmer credit. The combined effects of El Nino on farmer profitability in key ag producing states, coupled with the weakness in grain commodity prices, which has prompted farmers to postpone the sale of their stored grains and has led to widespread delays in farmer repayments to retailers across the industry. Our stringent credit standards and industry-leading average client creditworthiness have shielded us from meaningful surprises, particularly compared to the rest of industry. We were still impacted by payment delays in April. In many cases, we opted to comply to requests for short-term payment term extensions for a number of our long stand profitable clients. We did so to further strengthen these relationships and drive greater wallet share over time. However, our product credit approval policy compels us to wait for these clients to repay us before shipping them additional products on credit, and as a result of these decisions, we expect an adverse impact in our fourth quarter '24 results compared to our prior expectations. Additionally, our allowance for expected credit losses for the second half is now projected to be roughly $4 million higher than what we had originally expected. Finally, we are also negatively impacted with bonus-related to supplier agreements that didn't materialize in that some cases shifted to first quarter 2025. With all that said, we are revising our fiscal year 2024 projections as follows. Revenue is now projected to range between $1.8 billion and $1.95 billion, input revenues to range between $1.6 billion and $1.75 billion, and adjusted EBITDA to range between $46 million and $55 million. In Brazilian reais, our revised guidance is for revenues of BRL8.9 billion to BRL9.7 billion, input revenues between BRL7.9 billion and BRL8.7 billion, and adjusted EBITDA between BRL230 million and BRL280 million. As told, the vast majority of revisions to our adjusted EBITDA projections have to do with the adverse revenue impact that now we expect for the fourth quarter to our Brazil Ag Retail segments that I previously detailed. Regarding the next fiscal year to conclude, I wanted to just provide a few comments on the crop year '24-'25 and how it's shaping up for us in the industry. Current projections from outside market consultants is for the Retail Ag inputs market to decline by approximately 10% in the next year, driven mainly due to base effect of price declines that occurred through this year. Volumes are expected to grow low-single digits. While it's too early for us to provide the fiscal year 2025 guidance, we expect to continue to outpace the market as we did this year, driven by market share gains and helped by the contribution of RTVs higher this year. We also anticipate gross margins to improve relative to this year and for adjusted EBITDA to grow year-over-year. I'll now pass on to Julian for further details on our financial results. Julian Garrido: Thank you, Ruy. So let's start, first, the consolidated revenue for the third quarter rose by 6% to $514.2 million, expressed in Brazilian reais, revenue grew 1%. Inputs revenue decreased 1% as robust volume growth contribution from recent M&A and currency tailwinds continued to be offset by the deflationary headwinds from input price declines. Grain revenue grew 61% to $87.5 million, driven in part by a greater desire by our farmer clients for barter transactions. Looking at revenue by segment. Brazil Ag Retail saw revenue increase by 5% to $450 million, reflecting higher grains revenue, which grew 61% to $86.8 million, the impact of M&A with newly acquired Referencia and Coram, collectively contributed to 5% to third quarter '24 segment revenue and the currency tailwind from translating our results to USD. Inputs revenue declined 3% to $363.2 million as the impact of input price deflation and the adverse effects of the drought caused by El Nino more than offset significant volume increases across all product categories. Revenue trends were uneven across our various operating regions in Brazil. For instance, operation in Brazil Cluster South, comprising the states of Parana, Rio Grande do Sul, and Santa Catarina, which were comparatively spared from the drought conditions, saw inputs revenue grow 9% year-over-year in Q3. Contrasting to an input revenue decline of 17%, in our Brazil Cluster North operations, which comprise the state of Mato Grosso, most affected by the drought. Latin America, Latin Ag Retail revenue increased 5% to $50.5 million for the third quarter. Revenue was roughly flat when in Brazil reais terms. The growth was led by the currency tailwind steaming from the appreciation of the Colombian peso relative to U.S. dollars, 22% year-over-year in third quarter '24 in Brazil reais 16%. Robust growth in fertilizer sales volume 51%, partially offset by input prices declines in crop protection and fertilizers, lower corn seed revenue due to drought conditions in the north of the country resulting from El Nino, reducing planted corn seeds by an estimate of 10%, and the ongoing impact of the discontinuation of major herbicide from major suppliers product lineup. Now Crop Care revenue grew 30% to $22.1 million for third quarter 2024, led by biologicals, which grew 53% year-over-year, specialty fertilizers, which grew 6% and the contribution of recent acquired Cromo Quimica, which represented 5% of segment revenue in the quarter. Now shifting to consolidated gross profit for the quarter. We saw the decrease by 16% to $60.2 million as gross margin contracted by 310 basis points year-over-year to 11.5%, driven by an increased mix of grains revenue, the impact of input prices, inflationary environment across all segments, and increased freight expenses as a percentage of revenue. Looking at this gross profit by segment, we see Brazil Ag Retail gross margin contracted by 240 basis points year-over-year to 9.7% in third quarter '24, while gross margin inputs, which excludes the mix effect of grains revenue, contracted by 190 basis points to 12%. The prices at the farmgate for crop protection and fertilizer prices declined year-over-year and quarter-over-quarter in third quarter 2024. Our average cost of goods sold continued to gradually improve with the cycling of higher cost inventory in favor, helping drive this improvement. Latam Ag Retail segment profit was $7.3 million in third quarter, a decrease of 4% over the prior year, while gross margins declined 130 basis points to 14.4% due primarily to the impact of pricing, deflation to crop protection, and fertilizer distribution margins, as well as the negative impact from lower contribution from higher margin seed product sales. Crop Care segment gross profit grew 14% year-over-year to $9.1 million in third quarter while gross margin decreased by 550 basis points to 41.2% as the benefit of a more favorable mix of higher margin biological as percentage of segment revenue was more than offset by three things, the margin contraction within biological driven by tactical price reductions to stimulate sales volume. Second, negative product mix within Union Agro as farmers continue to favor more affordable basic products in lieu of premium foliar fertilizers due in part by the El Nino driven risk aversion of the Safrinha crop and the third is, an increase in freight rates. Net loss for the quarter was $64.8 million compared to a net loss of $74.3 in the prior year period. The $9.5 million year-over-year positive improvement reflects the absence of a one-time Nasdaq listing expenses incurred in the third quarter last year, $61.5 million positive impact relative to prior year quarter, partially offset by; one, a decrease in gross profits, $11.7 million; an increase in SG&A, $12 million led by higher D&A expenses, minus 2.9 million, and an increase allowance for expected credit loss of $4.3 million. Higher total financial cost $20.4 million led by a loss on fair value of commodity forward contracts and derivatives, $4.9 million, and foreign exchange difference, $6.4 million, and the last is an increase in income tax expenses, $11.3 million. Adjusted EBITDA was $3.7 million in third quarter '24 compared to $24.8 million in prior year with adjusted EBITDA margin contract of 440 basis points to 0.7% reflecting the gross margin pressure detailed above, along with a 150 basis points year-over-year increase in the SG&A, excluding D&A, as percentage of revenue. Adjusted net loss was $62.7 million in third quarter compared to $7.9 million in five years, driven by the items I just mentioned, lower non-recurring expenses items. With all that said, I'll pass it back to Ruy for some concluding remarks. Ruy Cunha: Thank you, Julian. So I would like to extend my gratitude to everyone participating in our conference today and for your interest in the progress of our company. Allow me to emphasize some key points from today's discussion. By any market metric, it can be said that the year '23-'24 has been extremely challenging for the entire agricultural value chain. Extreme weather events have penalized the profitability of farmers, which had already been affected by lower commodity prices. The market scenario has led producers and farmers to make purchasing decisions increasingly later, waiting for better conditions to sell their grains. This behavior combined with a more conservative stance on our part, has led us to defer billings that are now expected to occur in the first quarter of the next year. In this context, however, Lavoro has focused on what it can control. The company had another quarter of strong volume growth and market share gains in Retail Brazil and in Colombia. Our industrial unit Crop Care performed better this quarter than last year and significantly better than the market. This performance combined with our conviction that the strong fundamentals of agribusiness in South America remain intact, make us believe in a natural market recovery and in the companies outperforming the market in the upcoming quarters as well. With that, I will come back to the operator for questions. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kristen Owen with Oppenheimer. Please proceed with your question. Kristen Owen: Hi. Good afternoon. Thank you for taking the question. I was wondering, if we can start with the full year '24 guidance, you've lowered the range by $250 million and still a pretty wide range between the top and the bottom, and we're about 60 days into the quarter, so I'm just wondering, what are the swing factors that get you to the various ends of the full year guidance at this stage? Julian Garrido: Hi. I can take this one. So the main uncertainty at this point is the pace of shipments as we pointed out. Actually, we -- at this point in time, as we're close to the end of the fiscal year, we have our order bookings enough to fulfill the expected, let's say, higher end of the guidance, but one thing that is still -- to be observed is the behavior of farmers in also being willing to accept and engage with us through the shipments in the last quarter that are actually the first products to be used in the next season. So there's a lot of farming behavior at this point if they will be willing to accept the shipments of fertilizers mainly that will be considered in our, let's say, top end of the guidance. I would say, maybe a second factor is related to our decision also to ship some products to farmers as long as they also meet our expectations regarding the documentation and collaterals that still need to be finished. So I would say, right now, the variation is mostly depending on farmers behavior and some finalization on the credit procedures from both sides, from our side and from the farmer side as well. Kristen Owen: Okay. So for 2025, you suggested that the shipment timing is really just a shift, not necessarily that this is lost revenue, would we anticipate that that revenue that's shifting out of the fourth quarter would actually hit in Q1, or what's the level of clarity that you have on that? Julian Garrido: That's correct. So as long as -- so those are firm orders in our order bank right now, and we just need to feel comfortable with the whole procedure of documentation and collateral for credit sales, and we need to align with farmers for the best time for them to start receiving the product. So it's a matter of time and most likely will shift to the first quarter of '24-'25. Kristen Owen: Okay. Thank you very much. I'll take my follow-up questions offline. Thank you. Operator: Our next question comes from the line of Rahi Parikh with Barclays. Please proceed with your question. Rahi Parikh: Great. Thank you. Thank you for your time. My main questions revolve around biologicals. Do you expect to contract pricing further to gain volumes going forward, or do you think it would be stable from here on? And on the competition, do you see other players also lowering price for biologicals to facilitate buying? What are you seeing out there with your peers? Thank you. Julian Garrido: Thanks for the question. I can take this one. So I think on the pricing side for biologicals, we do not expect, let's say, heavier discounts from now on. We need to have one thing in perspective, which is the type of biologicals that we provide is most crop protection, biological solutions. And in somehow the prices of crop protection biologicals are also related to the crop protection agrochemicals that were highly depressed this year. So there was some effect of discounts to grow volumes, also some effect of the overall crop protection prices in the market being depressed. So this led farmers to be more demanding regarding prices, and this led to producers or manufacturers to take decisions to lower prices in the last months. I'd say, this trend now is to stabilize, and I do see some possibility of recovering some prices, as we expect also the agrochemical prices to start recovering as well. Rahi Parikh: Okay. Great. Thank you so much. Operator: Thank you. We have reached the end of our question-and-answer session, and with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Lavoro Limited (NASDAQ: LVRO) Quarterly Earnings Preview
Lavoro Limited (NASDAQ:LVRO) is set to release its quarterly earnings on June 30, 2025. As a key player in the agricultural sector, LVRO's upcoming financial results are highly anticipated by investors and analysts alike. The company's focus on enhancing farming productivity positions it as a significant entity within the industry. However, the financial forecasts and current ratios indicate a challenging period ahead.
- Earnings Per Share (EPS) and Revenue: Wall Street anticipates an EPS of -$0.67 and revenue of $338 million.
- Financial Challenges: LVRO's negative price-to-earnings (P/E) ratio of -1.37 and a high debt-to-equity ratio of 2.15 highlight its financial difficulties.
- Valuation and Liquidity Concerns: The company's low price-to-sales ratio of 0.15 and a current ratio of 0.95 reflect investor concerns about profitability and liquidity.
During the recent Q2 2025 earnings conference call, CEO Ruy Cunha and Tigran Karapetian provided insights into the company's financial health and operational challenges. Despite the negative P/E ratio and ongoing losses, LVRO's commitment to the agricultural sector remains unwavering. The company's valuation metrics, such as the price-to-sales ratio of 0.15 and the enterprise value to sales ratio of 0.30, indicate a cautious market sentiment. Moreover, the enterprise value to operating cash flow ratio of 131.69 and a negative earnings yield of -72.78% underscore the company's struggle with profitability and cash flow generation.
With a debt-to-equity ratio of 2.15, LVRO's reliance on debt financing is evident. This, coupled with a current ratio of 0.95, suggests potential liquidity challenges that could affect the company's ability to meet its short-term obligations. As LVRO prepares to unveil its quarterly earnings, stakeholders are keenly watching how the company navigates these financial hurdles in its pursuit of growth within the agricultural sector.
Lavoro Limited (NASDAQ:LVRO) Q2 2025 Earnings Overview
Lavoro Limited (NASDAQ:LVRO) recently disclosed its earnings for the second quarter of 2025. The company, which is listed on the NASDAQ exchange, reported an earnings per share (EPS) of -$0.67, aligning with the anticipated EPS. Despite this, Lavoro's revenue of approximately $303.7 million did not meet the expected $338 million.
During the earnings conference call on June 18, 2025, CEO Ruy Cunha and other key figures provided updates on the company's operations. Despite matching EPS estimates, Lavoro's financials reveal several challenges. The company's negative price-to-earnings (P/E) ratio stands at -1.45, indicating ongoing losses. Its price-to-sales ratio is 0.16, suggesting the market values its sales relatively low compared to its stock price. The enterprise value to sales ratio is 0.30, providing insights into the company's valuation in relation to its revenue.
Moreover, Lavoro's enterprise value to operating cash flow ratio is significantly high at 135.20, pointing to low cash flow in comparison to its enterprise value. The earnings yield is also negative at -0.69%, further emphasizing the company's current lack of profitability. With a debt-to-equity ratio of 2.15, Lavoro is heavily leveraged, indicating a substantial reliance on debt financing. The current ratio is 0.95, highlighting potential difficulties in covering short-term liabilities with current assets.
Lavoro Limited (NASDAQ:LVRO): A Deep Dive into Its Market Position and Analyst Expectations
- The consensus price target for Lavoro Limited (NASDAQ:LVRO) has significantly declined from $4.50 to $1.50 in the last year, indicating a shift in analysts' expectations.
- Market conditions, economic changes, and competitive landscape in Brazil, Colombia, and Uruguay could be influencing Lavoro's stock performance.
- Despite the overall downward trend, analyst Kristen Owen from Oppenheimer sets a more optimistic price target of $11, highlighting differing views on Lavoro's future.
Lavoro Limited (NASDAQ:LVRO) is a key player in the agricultural inputs retail sector, offering a variety of products like seeds, fertilizers, and crop protection solutions. The company operates in Brazil, Colombia, and Uruguay, utilizing both physical stores and digital platforms to reach its customers. This strategic approach allows Lavoro to cater to a broad market, enhancing its presence in the agricultural industry.
The consensus price target for Lavoro's stock has seen a notable decline over the past year. A year ago, the target was $4.50, reflecting a more optimistic outlook from analysts. However, this has decreased to $3.25 last quarter and further down to $1.50 in the last month. This downward trend suggests a shift in analysts' expectations, possibly due to various influencing factors.
Market conditions in the regions where Lavoro operates could be impacting the company's performance. Economic changes or shifts in the agricultural industry might affect the demand for Lavoro's products, leading analysts to adjust their price targets. Additionally, the company's recent earnings reports or announcements that did not meet expectations could also contribute to this reassessment.
The competitive landscape is another factor that could influence analysts' price targets. Increased competition or changes in market share might affect Lavoro's position in the market, prompting analysts to revise their expectations. Despite these challenges, Kristen Owen from Oppenheimer has set a price target of $11 for Lavoro, indicating a more positive outlook from some analysts.
Lavoro Downgraded Amid Brazil Credit Headwinds
Oppenheimer downgraded Lavoro (NASDAQ:LVRO) to Underperform from Outperform, citing near-term challenges tied to Brazil’s tight credit environment and prolonged cash conversion cycles. The firm also withdrew its prior $5 price target.
While broader sentiment in Brazil’s agriculture sector has recently improved—thanks to stronger commodity prices, a softer real, and shifts in U.S. trade policy—Oppenheimer flagged caution over the next 6 to 12 months. Key concerns include persistently high inflation, restrictive monetary policy, and the looming uncertainty of Brazil’s upcoming elections.
On a company-specific level, Lavoro faces limited working capital flexibility and ongoing pressure from the tail end of the agricultural downturn, potentially reducing its ability to capitalize on rising demand.
Lavoro Limited (NASDAQ: LVRO) Stock Analysis: A Deep Dive into Agricultural Inputs Retailer's Market Dynamics
- The consensus price target for Lavoro Limited (NASDAQ: LVRO) has decreased significantly from $5.70 a year ago to $1.50 last month.
- Despite the overall downward trend in price targets, some analysts, such as Kristen Owen from Oppenheimer, maintain a notably higher price target of $11, suggesting long-term value.
- Investors are encouraged to consider market conditions, company performance, and competitive dynamics in their decision-making process.
Lavoro Limited (NASDAQ: LVRO) is a leading agricultural inputs retailer, offering a wide array of products including seeds, fertilizers, specialty products, and crop protection solutions. With operations spanning Brazil, Colombia, and Uruguay, Lavoro leverages both physical stores and digital platforms to effectively reach its customer base. The company is in direct competition with other agricultural input providers in these regions, aiming to secure a robust market presence.
The consensus price target for Lavoro's stock has observed a downward trend over the past year. Initially, the average price target stood at $5.70, reflecting a more optimistic outlook from analysts. However, this target experienced a decline to $3.25 in the last quarter and further plummeted to $1.50 in the recent month. This trend indicates a shift in analysts' perspectives, potentially due to evolving market conditions or changes in the company's performance.
Insights into Lavoro's financial health and strategic direction were shared during the Q1 2025 earnings call on February 3, 2025. Key figures such as CEO Ruy Cunha and CFO Julian Garrido presented, with participation from analysts at firms like Oppenheimer, Barclays, and Canaccord. Notably, Kristen Owen from Oppenheimer set a significantly higher price target of $11 for Lavoro.
The Q4 2024 earnings call on November 1, 2024, also shed light on Lavoro's financial performance. Analysts, including Kristen Owen, reiterated a price target of $11, indicating some level of confidence in the company's potential despite the general downward trend in consensus targets. This suggests that certain analysts perceive long-term value in Lavoro's stock.
To fully understand the reasons behind the fluctuating price targets, it's crucial to examine recent news and developments concerning Lavoro. Factors such as market conditions, company performance, and the competitive landscape could all influence these assessments. Investors are advised to consider these aspects and engage in thorough research to make well-informed decisions regarding Lavoro Limited's stock.
