Weak GDP to hurt Brazilian companies, despite increasing profits

. Apr 24, 2019
Brazilian companies set to increase profits, but weak GDP may curb expectations

First quarter earnings season is upon us, as investors are keen to find out how Brazilian companies performed amid a sluggish economy which shows no signs of picking up at the desired pace. According to analysts at investment bank BTG Pactual, there’s still decent earnings growth ahead for this year, but further cuts to GDP forecasts may push profit estimates downwards.

Petrobras (oil) and Vale (mining) aside, Brazilian companies’ consolidated earnings will be 25 percent higher than last year, according to bank estimates. Analysts say they trimmed their earnings expectations for 2019 by only 3 percent since the beginning of 2018, with the worst cuts happening during last year’s trucker’s strike. After that dip, projections remained “pretty stable.”

</span></p> <p><span style="font-weight: 400;">However, they warn that “it may be only a matter of time before the 2019 consolidated earnings estimates are also trimmed,” as GDP estimates are repeatedly being lowered. Since the beginning of the year, market projections for Brazilian GDP went from 2.53 to 1.71 percent, according to the Focus Report, a survey of top-rated investment firms conducted by the <a href="">Brazilian Central Bank</a>.</span></p> <hr /> <p><img loading="lazy" class="alignnone size-large wp-image-16119" src="" alt="focus report brazil central bank" width="1024" height="683" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">The IBC-Br, a Central Bank index considered to be a GDP “thermometer,” fell 0.73 percent in February, the worst drop since the </span><a href=""><span style="font-weight: 400;">truckers&#8217; strike</span></a><span style="font-weight: 400;">. Considering that the index also fell 0.31 percent in January, many analysts think Brazil&#8217;s first quarter may be doomed. </span></p> <p><span style="font-weight: 400;">Given the economic scenario, analysts say “part of the improvement in earnings can be attributed to continuous deleveraging. We model for the deleveraging process to continue in 2019 and 2020.”</span></p> <p><span style="font-weight: 400;">Net revenues, on the other hand, are set to grow at a slower pace than profits: analysts foresee a 10.5-percent bump for 2019 and a 7.6-percent growth for 2020. That trend, propelled by deleveraging, has been witnessed since 2016 and if projections are confirmed, companies will have higher net margins for “a few more years.”</span></p> <h2>Earnings data in detail</h2> <p><span style="font-weight: 400;">When it comes to specific sectors, growth is in some cases much stronger than the overall average. The pulp and paper sector leads BTG Pactual’s earnings estimates list with an astonishing projection of 318.8-percent growth on a year-on-year basis. Excluding exporters, the food and beverage sector takes the lead, with a growth estimate of 113 percent.</span></p> <p><span style="font-weight: 400;">On the other end, the education sector is the only one that may see a negative trend: BTG Pactual estimates earnings 19.8 percent smaller than one year ago. Indeed, it has been a while since educational companies have suffered from high unemployment and budget cuts to federally-funded student loan programs over the past few years.</span></p> <p><img loading="lazy" class="alignnone size-large wp-image-16118" src="" alt="brazilian companies stock earnings" width="820" height="1024" srcset=" 820w, 240w, 768w, 610w, 1200w" sizes="(max-width: 820px) 100vw, 820px" /><span style="font-weight: 400;">

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