Lavoro Limited (LVRO) on Q2 2025 Results - Earnings Call Transcript
Operator: Welcome to Lavoro's Business Update Conference Call. [Operator Instructions] 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 to discuss our business update. We will be covering the out-of-court restructuring agreement with suppliers announced yesterday and the preliminary unaudited revenue and gross profit figures for Lavoro's fiscal second quarter 2025 ended December 31, 2024. During this call, we will reference certain preliminary unaudited financial information, which is subject to change and may differ from actual results. For full disclosures, including limitations and risks related to this preliminary information, please refer to the Form 6-K filed today with the SEC. In addition, 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, uncertainties that could differ materially from actual events or those described in these forward-looking statements. Please refer to the company's registration Form 6-K filed with the SEC today and other reports filed from time to time with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Before we begin, please note that we will not be hosting a Q&A session today, as we're limited in what we can disclose given ongoing core proceedings and the fact that we have not yet finalized our audit processes for the second quarter 2025. With that, I'll now turn it over to Ruy Cunha, CEO. Ruy Cunha: Thank you, Tigran, and good morning, everyone. I want to begin by acknowledging that this has been an extraordinarily challenging period for Lavoro and broader Brazilian ag inputs distribution industry. As many of you know, Brazil's agricultural inputs market has faced historical headwinds over the past 2 years. We have navigated severe input price deflation of 40% to 60% in crop protection and fertilizers, El Nino-induced drought conditions and widespread farmer liquidity constraints. These challenges intensified significantly in the late calendar 2024 when the judicial reorganization of a major agricultural retailer triggered a further tightening of inventory financing conditions across our industry. In our last earnings call, we discussed how ag retail operations in Brazil faced severe inventory shortages during November and December as a direct consequence of this abrupt shift. The constrained product availability in fertilizers and crop protection during these critical months of the first soybean crop season forced the cancellation of a significant number of farmer purchase orders, adversely impacting our second and third quarter results for the business unit. In January, we made progress with key suppliers that helped partially ease these bottlenecks. However, discussions in the months that followed made it clear that the typical approach of negotiating with each supplier individually lack the speed and scale required to prevent further disruption ahead of the next crop year. While these external factors were largely beyond our control, they reinforce our conviction that fundamental changes to Lavoro Brazil's inventory financing model were necessary. To that end, with the reorganization plan announced yesterday, we believe we now have a framework to position Lavoro Brazil to emerge on this cycle as a leaner and more resilient business unit. Before diving deeper, I want to emphasize that the reorganization plan discussed today is specific to our subsidiary, Lavoro Agro Holding S.A., which I'll refer to as Lavoro Brazil throughout this call. Lavoro Brazil comprises the Brazil Ag Retail operating segment and also includes Perterra, a subsidiary consolidated under Crop Care. The reorganization plan is commercially focused in nature pertaining solely to our supplier relationships and does not jeopardize our publicly listed entity or the broader corporate structure. Following weeks of extensive negotiation, Lavoro Brazil reached an agreement with a number of its key suppliers that provides for the extension of payment terms to secure future product supply for a multiyear period in order to help mitigate further supply chain disruption. Accordingly, Lavoro Brazil formally submitted to the Brazilian courts yesterday an out-of-court negotiated reorganization plan in connection with the agreement. The legal mechanism known in Brazil as Recuperação Extrajudicial, translated as Extrajudicial Reorganization, allows for the reorganization plan to become binding on all eligible product suppliers upon court approval, thereby ensuring broad-based effectiveness. As mentioned, with the 2025-'26 crop selling season underway, it was critical to identify a solution that would comprehensively resolve Brazil's inventory financing constraints. The reorganization plan we announced yesterday would provide a unified path forward and would help overcome the gridlock of negotiating with each supplier individually. Key product suppliers mentioned in the press release that are party to the agreement with Lavoro Brazil are committed to supporting the company's reorganization plan. Discussions with all our key suppliers are ongoing at advanced stage. While the full ratification of the agreement is conditional upon court approval of the reorganization plan, its supply and financing terms are already in effect, and the normal flow of inventory from these partners has resumed in the fourth quarter. To reiterate, the reorganization plan is limited in scope to Lavoro Brazil. All other subsidiaries within Latam Ag Retail segment and Crop Care segment, other than Perterra, are not included in the plan. Additionally, the plan applies exclusively to product suppliers of Lavoro Brazil and does not affect its financial lenders, financial creditors and third-party service providers, contractors or employees. The reorganization plan, if approved by the court, is intended to accomplish 2 essential goals. First, it creates a standardized, multiyear contractual framework with our suppliers, booked into 4 classes with clear repayment terms and annual supply commitments based on credit exposure. This marks a shift from previous one-off credit arrangements with each suppliers through a standardized model with predefined collateral requirements associated with future supplier inventory financing. To operationalize this new framework, we are in the process of establishing a new multiyear FIDC that will be backed by Lavoro Brazil receivables and supported by its existing financial lenders. FIDCs are receivables-based financial instruments widely using in Brazilian agribusiness to facilitate structured credit between counterparties. With that said, we see this new FIDC as introducing meaningful financing innovation in Brazil's ag retail sector, which we believe will benefit both Lavoro Brazil and its suppliers. By consolidating claims from multiple suppliers into a single centralized instrument backed by receivables, which have been assessed by independent third parties, this new structure enhances profitability and visibility for Lavoro Brazil, streamlines back office operations for all parties, and it strengthens collateral protection for suppliers. Second, the reorganization plan provides for the extension of approximately BRL 2.5 billion in supplier trade payables that were originally due to the end of fiscal 2025. Repayments in regular semiannual installments will be spread over multiple years. The extended payment terms will give us the flexibility to adjust Lavoro Brazil's fixed cost structure and drive operational efficiencies in a thoughtful and deliberate manner. Our retail network rightsizing plan, which we discussed in our last earnings call, is underway, along with actions to reduce overhead and improve commercial efficiency aligned within Lavoro Brazil. These steps are key to restoring profitability and positioning the business to grow from a leaner, more agile basis. As I mentioned, the reorganization plan is subject to customary court approval procedures. While we cannot predict the exact time line, these processes in Brazil typically take between 3 and 5 months to complete. At which point, the plan would become definitely binding on all eligible supplier creditors of Lavoro Brazil, although no assurance can be provided as to the exact expected timing in our case. In the interim, as I mentioned before, the agreement reached with our key suppliers is already in effect and the normal flow of inventory was reestablished during the fourth quarter. The full reorganization plan along with supporting materials is available on the company's Investor Relations website. Now I'll provide a brief commentary on our preliminary financial results for the second quarter. As noted in the 6-K filed today, the complexities associated with the reorganization plan impacted the completion of Lavoro's financial closing procedures. As a result, my remarks today will focus exclusively on preliminary unaudited revenue and gross profit for the quarter. In addition, in line with these developments, the company has also determined that it's appropriate to withdraw its previously issued fiscal 2025 financial outlook at this time. Consolidated preliminary revenue for the second quarter declined 27% year-over-year to BRL 2.25 billion. This decrease was primarily due to inventory shortages in Brazil Ag Retail, which led to purchase order cancellation and indirectly impacted Crop Care revenue as well. In U.S. dollar terms, revenue decreased 38% year-over-year to $384 million, with the year-over-year change reflecting the additional 15% depreciation of the Brazilian real relative to U.S. dollar. Breaking down this by segment. Brazil Ag Retail segment's revenue declined 30% year-over-year to BRL 1.84 billion due to the factors discussed earlier. That said, we noted on our last earnings call, projections from ag consultancies continue to indicate a meaningful recovery in farmer profitability for the current crop year, driven by improved weather conditions and stronger commodity prices compared to prior year. Receivable selections from farmers for the first crop, which took place in April and May, was in line with expectations. The percentage of on-time farmer repayments improved notably versus last year, reflecting both better farmer liquidity and the effectiveness of our disciplined credit risk management processes. Crop Care segment revenue was BRL 251 million in the second quarter 2025, a decrease of 30% year-over-year, primarily due to 2 drivers. First, Agrobiologica, our biologicals business, was adversely impacted by temporary industry-wide regulatory uncertainty surrounding on-farm biologicals. This led many farmers to adopt a wait-and-see approach. Although new legislation has since been enacted that resolves this uncertainty, the pause in demand occurred during the peak of the first soybean crop and the booking window for the safrinha season, resulting in a meaningful impact that will not be recovered this year but should not repeat next year. Second, sales of specialty fertilizers and adjuvants from Union Agro and Cromo to Lavoro Brazil were negatively affected by the constellation of bundled purchase orders due to broader product shortages. In Brazil, farmers often place consolidated orders that include fertilizers, crop protection, seeds and specialty products. When a key input such as fertilizer is unavailable, the entire bundle maybe canceled, indirectly reducing sales of otherwise available specialty products. Finally, Latam Ag Retail revenue grew 4% to BRL 287 million, reflecting stable market conditions and the appreciation of the Colombian peso. Consolidated preliminary gross profit decreased 28% to BRL 366 million, with consolidated gross margins contracting 40 basis points to 16.3%. Gross margin for the Brazil Ag Retail segment contracted by 240 basis points to 11.5%. This margin compression reflects our strategic decision to prioritize long-term client relationships by fulfilling orders with equivalent or, in many cases, superior products when originally ordered items were unavailable. This approach underscores our commitment to preserving customer trust and loyalty, which will be critical as market conditions normalize. Latam Ag Retail gross margin expanded by 480 basis points to 22.6%, driven by improved distribution margins in seeds and specialty products and the positive effect from product category mix shifts. Crop Care gross margins contracted 1,160 basis points to 23.7%, with margin compression reflecting an unfavorable shift in product mix, led by weaker biological sales as well as pressure from fixed costs under absorption and higher raw material costs due to the weaker Brazilian real. In closing, we're taking decisive and proactive actions to confront the challenges posed by Brazil's current inventory financing landscape. Our conviction in Lavoro Brazil's long-term thesis remains unchanged. By enabling our RTVs to serve as trusted advisers backed by our broad product portfolio of products and services, we continue to generate tangible differentiated value at the farm gate for our clients. We believe the reorganization plan will provide Lavoro Brazil with a scalable and predictable supply framework, strengthen supplier alignment over the long term, and enhance our ability to drive operational efficiency across the business. Together, these elements will help form the foundation for Lavoro Brazil's evolution into a more resilient, focused and profitable platform. Operator: Thank you. This concludes today's conference. 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.
