Bloomberg — Brazil’s Natura &Co (NTCO3)delivered an unexpected margin expansion in the fourth quarter, dealing a blow to skeptics who question whether the cosmetics maker can become a global beauty powerhouse.
The firm, which acquired Avon Products Inc. less than three years ago and is also the owner of the Natura, Body Shop and Aesop brands, saw its adjusted Ebitda margin rise by 90 basis points from a year earlier to 13.3%, the Sao Paulo-based company said Wednesday in a statement. Analysts were expecting a 180 basis-point drop.
“We were able to mitigate inflationary pressure and higher input costs through faster-than-expected synergies from the Avon integration and price management,” Chief Executive Officer Roberto Marques said in an interview.
Despite the beat, Natura is reassessing some investment plans and reducing discretionary spending as cost pressures will likely worsen in the first half of the year, according to Marques. “We’re bracing for a really challenging scenario,” he said.
“The fact that management has pulled various levers to protect margins is a positive sign, following very weak profitability in 3Q21 and in a scenario of significant margin pressures,” Bradesco BBI analysts led by Richard Cathcart wrote in a report dated March 9. They reiterated a buy-equivalent rating for the stock.
The company’s shares closed 16% higher in Sao Paulo Wednesday ahead of the release. The stock is still down 50% in the past 12 months, underperforming the benchmark Ibovespa index by about 48 percentage points after the firm had postponed its 2023 margin goal by a year. Last month, Brazilian asset manager Neo Investimentos said its long-only equity fund Neo Navitas closed its Natura position.
Natura said net revenue totaled 11.6 billion reais ($2.3 billion) in the fourth quarter, slightly above the 11.5 billion-real estimate, but down 3% from the same period last year.
The war in Ukraine has led Natura to halt operations of Body Shop and Aesop franchisees in Russia, Marques said. Avon also suspended exports from its Russian plant to other countries. Russia currently accounts for less than 5% of the company’s revenues, according to him.
The Russian plant continues to supply Avon direct-sales representatives locally so they can keep their professional activities. “There’s no financial advantage,” Marques said. “We simply don’t want to turn our backs on these representatives.”