Q1 2025 Lavoro Ltd Earnings Call
Thank you for watching
Speaker Change: Poker Face, Jr., Educational Official which gives me a knack for making videos, a nice coat, and a nice tie. I'm just going to upload some videos, like right here, and a link in my blog post with
Levar: Welcome to Levar's Fiscal 2025 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode.
Speaker Change: If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. Question and answer session will follow the formal presentation.
Speaker Change: I will now turn the conference over to Tigran Karapetian, Head of Investor Relations. Thank you. You may now begin.
Speaker Change: Thank you for joining us today on Le Horo's fiscal 2025 first quarter earnings conference call, where results ended on September 30th, 2024.
Speaker Change: On today's call are Chief Executive Officer Ruy Cunha and Chief Financial Officer Julian Garrido.
Speaker Change: The company has provided supplemental earnings presentation on its investor relations website at ir.lavoroagro.com. That may be helpful in your analysis in the quarterly performance.
Speaker Change: Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: including statements regarding our future results in operations and financial position, business strategy and market growth among others.
Speaker Change: These statements are based on management's current expectation belief and involve risks and uncertainties that could differ materially from actual events or those described in these four looking statements.
Speaker Change: Please refer to the company's registration form 6K5 of 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 today.
Speaker Change: Management will refer to certain non-IFRS measures including adjusted EBITDA, adjusted EBITDA margin, adjusted profit or loss, among others.
Speaker Change: 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 an isolation or as a substitute for the financial information presented in accordance with the IFRS.
Speaker Change: Please refer to today's release for reconciliation of non-IFRS measures to the most comparable measure prepared in accordance with the IFRS.
I will now turn it over to Ruy Cunha, CEO.
Ruy Cunha: Thank you, Tigran. Good morning, everyone, and thank you for joining us today as we review Lavoro's first quarter 2025 results.
Ruy Cunha: As outlined in today's earnest release, our first product 2025 results largely mirror the trends
team in fire quarters across our operating segments.
Ruy Cunha: RobCare continues to demonstrate strength and resilience, delivering double-digit year-over-year growth in revenue, gross profit and adjusted EBITDA.
Ruy Cunha: Progress made with initiatives aimed at enhancing the vertical integration between CropCat and our retail operations in Brazil are continuing to yield strategic benefits.
Ruy Cunha: LATAM Ag Retail reported its second consecutive quarter of revenue and gross profit growth as market conditions improved with the easing of input price deflation pressures and the residual impact of last year's dry growing season.
Ruy Cunha: Brazil Ag Retail achieved 7% year-over-year growth in gross profit supported by 350 basis points in gross margin expansion.
Ruy Cunha: This is more than offset by the impact of revenue decline by the tightening of our credit policy with farmers and the carryover effect of last year's input price declines.
Ruy Cunha: Now let's discuss the evolving market landscape, which has seen considerable changes since the end of our first quarter.
Ruy Cunha: If you recall in our last earnings call, we described the Brazilian Ag Inputs market as being shaped by contrasting dynamics.
Ruy Cunha: On one hand, expectations for notable improvement in farmer profitability for the 2024-25 crop year alongside stabilizing input prices.
Ruy Cunha: Fast forward to today, the outlook for farmer profitability for this year and next has improved further.
Ruy Cunha: Favorable weather conditions during the soybean growing season have improved yield expectations across Brazil. In addition, rainfall projections for saffronia season appear encouraging, particularly as local corn cash prices have risen above 70%.
Speaker Change: They are a spare bag for the first time since early 2023.
Speaker Change: Meanwhile, agrochemical prices at the farm gate have remained stable for the second consecutive quarter, suggesting that the issue of excess channel inventories has been largely resolved.
Thank you very much.
Speaker Change: In contrast to these positive developments, liquidity constraints in the agribusiness sector escalated significantly in the last two months of the calendar year.
Speaker Change: As a reminder, credit plays a fundamental role in Brazil's retail sector, retailers extending financing to small and medium-sized farmers for input purchases at the start of crop season, with repayments expected at harvest.
Speaker Change: Similarly, input suppliers provide credit to retailers expecting repayments on a similar timeline, making liquidity a critical factor across the value chain.
Speaker Change: Department's liquidity restrictions have resulted in a significant decline in cash-based input purchases.
Speaker Change: which ordinarily account for 25% to 30% of farmers' purchase orders.
Speaker Change: In this first half of this year, this percentage fell to low single digits, increasing Lavoro's working capital financing requirements.
Speaker Change: In addition, the judicial reorganization proceedings of a major agri-retailer in Brazil triggered a sudden shift in risk aversion among suppliers and financial institutions, which led to a significant tightening in inventory financing conditions for lavoro and retail industry peers.
This abrupt tightening of supplier inventory finance
coupled with the decline in cash-based purchase orders from farmers
Speaker Change: led to severe inventory shortages for our Brazil retail operations in key product categories during November and December, a critical window for the first soybean crop.
Speaker Change: Though inventory replenishment and new purchase order activity have yet to fully normalize.
Speaker Change: I'll now pass it over to Julian for a deeper look at the financial results.
Thanks, Ruy.
Speaker Change: In the first quarter of 2025, the voters consolidated revenue of a total of R$2.0 billion.
13% year-over-year decline.
Speaker Change: This decrease was primarily driven by the lingering effects of input price deflationary headwinds in Brazil ag retail.
Speaker Change: partially upset by strong growth in crop care, which saw a 68% revenue increase led by Union Agro-Interterra.
Speaker Change: In US dollar terms, consolidated revenue declined 24% year-over-year, impacted by a 12% depreciation of the Brazilian real compared to the prior year period.
despite low revenue.
mainly driven by improved distribution margins in Brazil ag retail.
Speaker Change: In U.S. dollar terms, gross profit declined 4% year-over-year, reflecting the currency translation effect.
Speaker Change: A voter reported a net loss of R$267.1 million compared to a net loss of R$71 million in first quarter 2024.
representing an increase of 196.1 million year-over-year.
Speaker Change: As those tax assets were created last year, but we suspended the creation this year as per current results.
Speaker Change: Besides that, we had higher finance costs of R$60.7 million, mainly due to higher interest expenses.
or in exchange impacts and other financial expenses.
In US dollar terms, net loss was $48.2 million.
in compare to
14.5 million in the prior year period.
Speaker Change: Adjusted net loss was R$ 269.2 million compared to adjusted net loss of R$ 42.9 million in the prior year quarter with similar key drivers.
Speaker Change: Adjusted DTDA declined 5% to $54.4 million as IRS G&A expenses, driven by personal costs and inventory provisions, offset gross profit growth.
Speaker Change: And U.S. dollar terms, adjusted EBITDA was $9.8 million, a 16% decline compared to first quarter 2024.
Turning now to our segmented results.
Let's start with the Brazil Ag Retail.
Speaker Change: Revenue in Brazil at retail declined 23% year-over-year, 1.55 billion reais.
Speaker Change: Trigun, by last year's input price declines and farmer liquidity constraints.
Speaker Change: Input revenue fell 19%, but China saves volumes in crop protection and specialty products.
were more than offset price mix headwinds.
in crop protection and specialties.
and sales volume declines in the sea.
Speaker Change: those profit grew 7% to 189 million reais with margin spending 350 base points
Supported by stronger distribution margins.
Speaker Change: led by a combination of better inventory cost positioning and stabilized input prices on a sequential basis.
Speaker Change: Adjusted EBITDA declined 6% to $45.1 million, impacted by higher provisions on expired inventories and personnel costs, partially offset by lower allowance for expected credit loss.
Now let's talk about lockdown at retail.
Revenue in Latin America increased 4% year-over-year to $337 million.
Speaker Change: benefitting from the 12% appreciation of the Colombian peso relative to the Brazilian real.
Speaker Change: Gross profit grew 7% to $47.8 million, with margin expanding 40 basis points to 14.2%.
Speaker Change: I just did a BJDOTI claim 32% with 10.4 million values has higher credit provisions and personal costs more than offset the increase in gross profits.
Last but not least, our crop care segment.
Speaker Change: supported by strong commercial execution and external sales growth. Perterra also saw significant expansion, benefiting from expanded portfolio product registrations and improved S&OP coordination with Brazil Agrita.
Speaker Change: Gross profit increased 11% to $84.3 million, while gross margin declined around 1,400 basis points to 28.7%, reflecting changes in product-attractive mix.
Speaker Change: I've just said it'd be to die increase 24% to 35.9 million guys.
driven by higher gross profit and operational efficiency.
partially upset by increased personal costs.
Now turning over to our outlook for fiscal year 2025.
Ruy Cunha: As Ruy mentioned, the widespread supply constraints in the second quarter
had a mature impact on La Jolla's commercial operations.
with residual effects expected throughout the fiscal year.
Ruy Cunha: Consequently, we are updating our full year 2025 outlook to better align with the current business environment.
We now expect...
consolidated net revenue between R$6.5 billion and R$7.5 billion.
Ruy Cunha: inputs net revenue between 5.9 billion reais and 6.9 billion reais.
U.S. dollar terms.
Ruy Cunha: Based on an assumed average US dollar-Brazil exchange rate of 5.9
Ruy Cunha: We expect consolidated net revenue between $1.12 billion and $1.28 billion.
Ruy Cunha: Finally, we no longer expect Adjusted V2.0 to grow in full year 2025 compared to full year 2024.
Ruy Cunha: With all that said, I'll pass back to Ruy for some concluding remarks.
Thank you again.
Ruy Cunha: Looking ahead, we are encouraged by the improvement in farmer sentiment in Brazil in light of the prospects for enhanced crop stability in the 2024-2025 crop season.
Ruy Cunha: We expect the potential cash proceeds from the upcoming soybean harvest should help ease farmers' liquidity constraints, which will have a positive effect on the rest of the value chain.
As we navigate through these near-term inventory financing disruptions,
Ruy Cunha: We remain committed to executing the factors within our control and implementing strategic measures to ensure Lavoro is well positioned to capitalize on early signs of end-market recovery and continue to gain momentum.
Ruy Cunha: The cost savings initiatives outlined in our last earnings call focus on retail network optimization and fixed cost reductions are now in motion.
Ruy Cunha: As part of this effort, we have identified seven stores within our Brazil retail footprint that are in close proximity to more profitable locations and will be consolidated.
Ruy Cunha: RTV from affected locations will be reassigned to nearby stores, minimizing the impact on market reach and revenue potential.
Ruy Cunha: We estimate these store closures will reduce Lavoros Brazil Ag Retail Input Revenue potential by approximately 10% all else equal.
Ruy Cunha: Overall, these initiatives will lower fixed costs by eliminating duplicative administrative and freight expenses, while also enhancing working capital efficiency.
Ruy Cunha: We expect the benefits of these cost-saving measures to materialize in the second half of the fiscal year.
With that, thank you, and I'll pass over for Q&A.
Ruy Cunha: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad and a confirmation tone indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue.
Ruy Cunha: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please while we poll for questions. Thank you.
Speaker Change: Thank you. And our first question is from the line of Kristen Owen with Oppenheimer. Please proceed with your questions.
Hi, good morning. Thank you for taking the question.
Speaker Change: So understanding some of the severe headwinds that we should be expecting in Q2, but, you know, from a sentiment perspective and some of your comments on the end market, it sounds like there may be some room for improvement in the back half of your fiscal year.
Speaker Change: Hi Christian, this is Ruy. Thanks for your question. I think we, the main fact is really on the timing that we got the input. So as we mentioned, we actually had a very good first quarter, we're getting all the conditions, some margins improving and we also saw the sentiment of farmers improving year over year.
Speaker Change: Now, with the delays in getting inventories for the deliveries of the soy crops have impacted our second half.
We
Speaker Change: Today we won't provide much more detail on the specific impact on the second quarter, but what I can say is that we do expect
Speaker Change: a second semester with a good result, but today this point is yet to be confirmed.
Speaker Change: So, what we know for sure is that the levers for the StarClock were affected.
Speaker Change: We did our best in terms of replacing the products of orders with the products that we had in inventory, but that had an effect on our mix, so we couldn't supply all the products we needed at that time.
Speaker Change: and the other two are going to be... ... ... ... ... ... ... ... ... ... ... ... ... ...
Okay, that's helpful. Thank you
Speaker Change: One more related just to the sentiment, and then I'm sorry, I do have a follow-up, but on the sentiment piece, the de-bottlenecking,
Speaker Change: In January, can you maybe help us unpack how much of that is OEM willingness to put more product in the channel versus just improved cash conversion on the farmer's side now that we're starting to get into harvest season?
Sorry, you mean the farmer sentiments on the markets, or?
Speaker Change: I'm not sure if that answered the question. A bit of both. A bit of both. If the OEMs are getting more comfortable sending more product to Brazil and then what the sentiment with the farmer is and their cash conversion cycle, so your ability to actually start to collect on some of that.
Speaker Change: Well, I think it all starts with the farming income, as we mentioned in the past.
Speaker Change: So we see the right conditions for farming improving their income this year.
Speaker Change: We already saw that the prospects for a very strong soy crop that should surpass 170 million tons. We also expect some expansion in the corn area, so it's going to be most likely a strong crop year.
Speaker Change: And we also see some other positive effects with the dollar appreciation that should help farmers too.
Speaker Change: sell their crops at interesting prices. So we do see an improvement in farmer sentiment and also their ability to meet their commitments.
Speaker Change: Consequently, this should also reflect in a better mood for input manufacturers. When it comes to input manufacturers, it is also important to remember that they were affected by the excess inventory in the retail channels in the previous year, and I think this effect has...
Speaker Change: by large being normalized by this time. So overall, it's a better mood both for input manufacturers and also for farmers.
Speaker Change: Now, obviously, the timing is going to be a little bit challenging. We need to follow up on the next month. So, the trend is positive on both sides.
Speaker Change: Thank you for that. My last question and then I'll turn it over. I did notice the strength of the off-patent business this quarter. Can you articulate how much of that is coming from the internal integration of your own channel versus maybe what you're seeing in terms of the registration pipeline as some of these big patents are starting to roll off? Thank you.
Speaker Change: Yes, so actually it's both. So for two years already in a row, Perterra has been one of the most prolific companies in terms of product registrations in Brazil.
Speaker Change: So we now have a very strong pipeline of products and that includes herbicides, insecticides, and also fungicides.
So that is one key component.
Speaker Change: path to grow, we do see this business as having much more potential than what we see today. So we should be looking at this part of the business as a very exciting one.
Thank you.
Speaker Change: Our next questions are from the line of Ben Thurr with Barclays. Please proceed with your question.
The
Ben Thurr: Good morning and thank you very much for taking my question. Just following up on a couple of topics, I really wanted to understand a little bit of your initiatives of reducing the store count and how that relates just to maybe the competitive dynamics.
Speaker Change: that you're seeing in the market, but also what that potentially means as you think about what your guidance is for this year, how much of that is really just related because of that decision to rationalize your footprint. And as we then move into
Speaker Change: the next year, which calendar starts for you guys anyway in the third quarter. Just wanted to understand how we should think about this into fiscal 2026 once you're doing all these rationalization efforts. Thank you.
Yes, hi Ben.
Speaker Change: So the reason for revised guidance is mostly what we mentioned about our ability to deliver the products on time for the start crop, so there's not an impact from the footprint optimization.
Speaker Change: This initiative of footprint optimization we have announced in our last call and we're basically underway. But what it does is we looked at our footprint of stores in Brazil.
Speaker Change: And we, obviously, as a company that grew through acquisitions and very aggressive growth over the last years, we saw an opportunity for consolidating nearby stores and maintaining the most profitable ones.
Speaker Change: As a result, we should be able to reduce something around 70 stores.
Nope.
I think they're lying. Just one second.
Speaker Change: I just heard something around like 70 stores or something like that you said and that's when I kind of like lost you.
Yeah, whose lines are off?
Okay.
Sorry for that. No worries. Thank you.
The
Ruy, you're reconnected.
Speaker Change: Thank you. Our next question is from the line of Austin Miller with Canaccord. Please proceed with your question.
Austin Miller: Hi, good morning. So the precipitation levels based on the data that we've collected are improving. Is there anything the government can do to improve financing activity? Or will it just take the cash from the new harvest to be able to boost purchasing? Is that really the only option here?
Yeah, I mean, it's a
Austin Miller: topics since the government is probably not in shape of providing much additional liquidity at this moment beforehand.
Austin Miller: We do not believe that that will be something that will happen soon. We still have to see the next...
Austin Miller: next year crop year plan that I would say as of now we do believe that the most of the improvement is going to come from improved profitability and also I think farmers are more
Austin Miller: risk-averse in this sense. So they're trying to take the opportunity to sell their crop at the right time and that should also help them. We still have to look at what the government will do but I think at this moment most of what we see as positive news is actually coming from the farmers.
Thank you for watching!
Speaker Change: Right, and so as demand recovers, do you expect to lease new retail space or just sell within the consolidated space that you now have just since the demand side of the equation seems to be improving?
Speaker Change: Yeah, in terms of strategy, I think we do have a very, let's say, comprehensive footprint already and a very large base of clients.
Speaker Change: So our main interest right now is to consolidate our position and make sure that
Speaker Change: We continue the trend of improving margins, which is, you know, after one year of very tough market conditions.
Speaker Change: Our main focus is to protect our client base and improve the operational results. I think there will be opportunities here and there for, let's say, tactical movements, but our priority is not to expand our base right now.
The End
That's very helpful. Thank you for the caller.
Thank you.
Thank you.
Speaker Change: Thank you, and we do have a follow-up from the line of Ben Thurr, Barclays. Please go ahead with your question, sir.
Speaker Change: Yeah, good morning. That's just me. Let me just squeeze in the follow-up here that I had. So, as we look into, well, geopolitics and how you think about this, this could potentially impact the Brazilian farmer sentiment. So, obviously, over the weekend, a lot has happened in the United States with like tariff announcements and all that kind of stuff against countries that tend to be big buyers of agriculture commodities from the US. And obviously, with
potential retaliation, etc.
to get maybe some of your initial thoughts as to.
Speaker Change: how that could put Brazil into maybe a little bit of a better spot and how also in light of where we are on the FX side, obviously, where it was a year ago, the BRL closer to six now, has that helped somewhat the sentiment? And it's just that we still need to go through a little bit of like these
Speaker Change: remaining de-stocking issues but moving forward sentiment could actually trigger an overall better environment or how do you feel just about the farmer itself and its willingness to kind of like go back into the business if you want to put it this way?
Speaker Change: Hi, Ben. So, farmers are always the first ones to feel the impact, either negative or positive, right? So, I think right now, most of the improved sentiment is actually coming from farmers, with some of the points you mentioned, including, let's say, a real depreciation, and also more production in terms of grains.
Speaker Change: It has been said, when it comes to the changes in the global environment and the election in US, in 2018 the effect of Trump was positive to Brazilian farmers, as we all know.
Speaker Change: have an impact in fertilizer prices in North America, with consequent changes in the area of production. So, overall, this might have a positive impact on the soil price.
Speaker Change: and also maybe a positive impact for Brazilian farmers when it comes to exports, as China will also be taxed, even though to a lower extent. So overall, I think...
Okay, perfect. Thank you very much.
Speaker Change: Thank you. At this time, I'll now turn the call back to management for closing remarks.
Hello?
Speaker Change: Thank you for once again being with us in this call.
Speaker Change: I think the quarterly results showed the trends that we anticipated in the first year.
Speaker Change: All when we outline the expectations for this year. Obviously some additional challenges when it comes to the credit and liquidity in the market. I think the overall trends and the improvement in margins is highly in line with what you mentioned.
We're going to have a challenging year ahead.
Speaker Change: The management is focused on what we can control and improving our profitability over the next months.
Speaker Change: and we'll keep you posted in every change. But for now, I would like to thank you and thank the team for the extraordinary job that they have done so far. Thank you.
Speaker Change: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.