Arquivos economic activity - Murray Advogados

Lower inflation is another factor expected to drive results, analysts say

10/26/2022

Brazil’s economic growth is expected to boost the results of companies operating in the domestic market during the third quarter, although the real impact of the stimulus measures in the period is still uncertain. Analysts believe that the retail market aimed at high-income earners will remain resilient, while the doubts lie in the low- and middle-income markets. As for commodities, devalued ore and steel are expected to harm the numbers.

“Overall, what we are seeing is a slightly positive season in both the quarterly and annual comparison for some sectors of the domestic economy, beyond what we previously expected,” said Gabriela Joubert, chief analyst at Inter. She points out that the cooling of inflation and better-than-expected economic activity are expected to boost results.

Most banks estimate GDP growth of 0.5% year-over-year in the third quarter. The services category sustains this growth, benefiting companies. Brazil’s official inflation index IPCA is likely to present a scenario of deflation in important consumer categories between July and September.

Costs, which pressured the results in the second quarter, may fall in the September quarter, analysts say, amid a reduction in fuel prices and the relief in global chains, reducing expenses with freight and basic materials. Pay rises, however, amid the trade unions’ agreements season, may increase personnel expenses.

Aline Cardoso — Foto: Claudio Belli/Valor

“When compared to the second half of the year, companies seem to have managed to pass on costs to consumers in the third quarter, following the improvement in the GDP,” said Aline Cardoso, institutional equity strategist for Brazil at Santander. Among the main highlights are construction, shopping malls, transportation, retail, and healthcare — the latter driven mainly by mergers.

In the group of companies covered by the bank, Santander estimates a year-over-year growth of 16% in revenues and a quarter-over-quarter expansion of 3.7%. Net income is expected to rise 17.8% year-over-year and 22.7% over the April-June period. The bank expects EBITDA to grow 15.4% year-over-year and 11.5% over the second quarter.

XP has similar estimates, expecting revenues to increase 23.2% year-over-year, while profit advances 19.6% in a year and EBITDA rises 24.9%. Considering the market consensus, the digital bank projects that the EBITDA margin will fall by 0.63 percentage points. As for the second quarter, they expect some stability in revenue and EBITDA.

Despite the more positive domestic economic activity, it is still too early to project an improvement in all sectors, said Bruno Lima, a senior equity analyst at BTG Pactual. He believes that when the unemployment rate is lower, consumer and retail assets exposed to a higher ticket will have revenue acceleration.

“We have seen GDP figures improving, but this has been helping specific segments, such as high-income retail,” he said. Mr. Lima says that online retail may still face a challenging quarter, due to the exposure to white goods, such as home appliances, which have high prices. The effects of the cash-transfer program Auxílio Brasil on consumption may be felt in the final three months of the year.

The result of the cash-and-carry chain Assaí in the third quarter, released last week, gives clues as to how the food retail may behave, especially the one aimed at low-income. The cost-benefit appeal of Brazilian stores is the main highlight of the segment, indicates Goldman Sachs.

Assaí reported revenues of R$13.8 billion, up 27.5% year-over-year. Same-store sales grew by 9%. The result came 2.4 percentage points above GPA Brasil in the same indicator, when compared to the latter’s sales report in the third quarter.

“Food retail has this resilience because it is basic consumption and this creates a very strong capacity to pass on prices, maintaining margins,” said Ms. Joubert. Apparel retail should have mixed results, with the weaker winter hurting sales for the season, partially mitigated by the resumption of face-to-face activities, and increasing demand for clothing.

Companies dealing in metal commodities are likely to be the negative highlight of the earnings season, with iron ore falling 36% year-over-year in the third quarter. Oil is still up 32% year-over-year, but down 13% quarter-over-quarter. The pulp and paper industry, on the other hand, appears among the positive highlights, given the resilient pulp price, above $800 a tonne.

Doubts about global demand for ore and oil, with concerns about recession, affect the numbers. “Especially in the mining sector, revenues are expected to be impacted by lower prices, as sales are still weak, despite volumes improving,” points out Inter’s chief analyst. The margins of mining companies are likely to suffer with this scenario, in addition to a delay in the cooling of costs, which is natural for the sector.

For the fourth quarter, China’s activity is on the radar, indicates the BTG analyst. The country, which imports more than 60% of Brazilian ore, has been showing lower-than-expected growth. The Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre) expects Chinese GDP to stand at 3.4% in 2022, well below the government’s target of 5.5%.

“In oil and gas, we expect a strong production, with the barrel around $100, which may leave the companies’ revenues at healthy levels,” said Gabriel Barra, an analyst at Citi. The drop in fuel prices, however, is expected to affect the results of the companies in the sector, generating losses with inventories and compression in margins.

The power sector, which in the third quarter of 2021 suffered from the prolonged drought, this year is likely to have better results. In Credit Suisse’s view, generation is expected to see costs fall with the reduction of hydrological risk, while distribution may see mixed results and transmission will be helped by contractual hikes.

*By Felipe Laurence, Victoria Netto — São Paulo

Source: Valor International

https://valorinternational.globo.com/

Claudio Considera — Foto: Leo Pinheiro/Valor

The economic activity fell 1.4% in January compared to December, according to GDP Monitor — an indicator calculated by think tank Fundação Getulio Vargas (FGV) to measure the monthly evolution of the economy, unveiled on Monday.

Claudio Considera, the economist in charge of the readings, says that the result indicates stagnation in the economic activity in early 2022. This is because there are no signs of robust reaction in key segments of the economy, such as household consumption and services economy — the latter representing more than 70% of the GDP.

According to him, Brazil does not have, at the moment, conditions for sustainable growth this year, and is expected to end up with a variation close to zero in the GDP in 2022, compared to last year. “We have today a perfect picture of a totally stagnant economy,” the specialist said.

FGV also unveiled that, in the GDP Monitor, the economy grew 1% in the moving quarter ended in January, compared to the one ended in October 2021. Compared to January last year, the economy grew 1.2% in January this year, with expansion of 2% in the quarter ending in January, compared to the same period in the previous year.

Mr. Considera said, however, that those increases are favored by the low base of comparison, referring to last year, and do not represent the economy accelerating at the beginning of 2022.

This is because the faster advance of vaccination against Covid-19 only happened in mid-2021, when the gradual reopening of the economy began to take place, as people went back to work and restrictions on circulation were eased. Immunization against the disease started in Brazil only in January last year — a month in which the economy, especially in the commerce and service sectors, was operating at a weak pace, hampered by the pandemic, and was strongly affected by social distancing measures designed to contain contagion.

On the demand side, one factor that help form the current moment of weaker activity is the weakening of household consumption at the beginning of the year, Mr. Considera said. In the GDP Monitor, in January, household consumption fell 1.3% compared to December last year.

There was an increase of 2.2% compared to January 2021, but the analyst said that the use of a low base of comparison influenced upwards the high results seen in the indicator in January 2022. In the moving quarter ended in January versus the one ended in October, household consumption grew only 0.8%.

“Household consumption is falling, and now with higher inflation it will be even harder to grow,” he noted, adding that higher inflation leads to lower real household income. “We are not seeing any sign of improvement [in family consumption],” he said.

Another aspect Mr. Considera mentioned was the Russia-Ukraine war, which has led to a surge in the price of oil abroad and to increases in fuels in Brazil. As long as the war goes on, the price of a barrel of oil in the foreign market may remain high, making prices soar in the Brazilian domestic market, he said.

On the demand side, the services sector is not showing good signs on the margin either. In January, this activity fell 1.7% compared to December last year in the GDP Monitor.

According to Mr. Considera, the factors at the moment indicate that the country does not show the necessary conditions to grow above 1% a year in 2022. “I don’t see conditions to strongly grow this year. We are expected to have a very weak growth of 0.6%, 0.7% [in the 2022 GDP],” he said.

Source: Valor International

https://valorinternational.globo.com

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