Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adecoagro SA (AGRO, Financial) reported a 30% year-over-year increase in consolidated adjusted EBITDA, reaching $140 million for the quarter.
- The company has successfully repurchased 5.2 million shares, representing 4.9% of its equity, and committed $35 million in cash dividends.
- The farming business saw a near doubling of adjusted EBITDA in the first semester, driven by the expansion of the rice footprint into Uruguay.
- Adecoagro SA (AGRO) has renewed its buyback program, allowing for the repurchase of an additional 5% of the company's equity by year-end.
- Net debt decreased by 26% compared to the same period last year, showcasing improved financial health and operational results.
Negative Points
- Lower than expected yields and a year-over-year decrease in selling prices negatively impacted the sugar, ethanol, and energy business.
- The rice segment experienced a decline in adjusted EBITDA during the quarter due to lower sales and higher costs in US dollar terms.
- Despite a significant recovery in production, the farming business faced challenges from lower international prices and higher costs.
- Dry weather conditions have put pressure on sugarcane yields, potentially affecting future production and costs.
- The company faced technical difficulties during the earnings call, which may have hindered the clarity of some financial and operational updates.
Q & A Highlights
Q: You have been carrying higher levels of ethanol inventory. Can you share your thoughts on the ethanol price curve and the expected timing for deploying these volumes into the market?
A: Renato Pereira, Director - Sugar and Ethanol Operations: We are positive regarding ethanol prices. Hydrous demand is strong, reaching almost 2 billion liters per month, with parity rates at the pump at 67%. We expect prices to surpass the 7% parity rate in the next months, with an upside of around 10% from current prices.
Q: What are your thoughts on the sugar price outlook for the remainder of the year, and how should we think about the mix between sugar and ethanol?
A: Renato Pereira, Director - Sugar and Ethanol Operations: We remain positive on sugar prices due to low global stocks and weather challenges in Brazil. The mix is expected to be around 50%, lower than the anticipated 52%. We have hedged 7% of our estimated production at $0.231 per pound.
Q: Can you provide an outlook for rice prices for the remainder of the season and into 2025?
A: Mariano Bosch, CEO: We are confident in current rice price levels for this year. Future prices will depend on the upcoming planting season in South America. Our specialized production and high value-added products will continue to command a premium.
Q: What are the expectations for production costs in the sugarcane business for the second half of the year?
A: Renato Pereira, Director - Sugar and Ethanol Operations: Production costs in reals should be similar to last year, with some components decreasing (fertilizers, freight) and others increasing (salaries, diesel). In dollar terms, costs are expected to be slightly lower due to currency devaluation.
Q: How will the dry weather in Brazil affect sugar production and global prices?
A: Renato Pereira, Director - Sugar and Ethanol Operations: Yields are expected to decline due to dry weather and cold fronts. The mix is also lower than expected, around 50%, which could reduce sugar production by approximately 2 million tons. This will likely support higher global prices.
Q: Will Adecoagro face similar challenges due to dry weather?
A: Renato Pereira, Director - Sugar and Ethanol Operations: We started the year with good outlooks, but dry weather has pressured yields. We expect to crush more sugarcane this year due to expanded plantations and third-party acquisitions, but yields will be slightly lower than last year.
Q: Can you elaborate on the financial performance of the farming business?
A: Emilio Gnecco, CFO: Adjusted EBITDA for the farming business totaled $38 million during the quarter and $82 million year-to-date. Higher results are due to outperformance in all three segments, despite lower international prices and higher costs in US dollar terms.
Q: What is the status of your capital allocation strategy?
A: Emilio Gnecco, CFO: We have exceeded our minimum distribution policy by $16 million, with $35 million in dividends approved and $51 million in share repurchases. Our Board has approved the renewal of our buyback program to repurchase up to an additional 5% of the company's equity until year-end.
Q: What are the key drivers behind the increase in crushing volumes in the sugar, ethanol, and energy business?
A: Emilio Gnecco, CFO: The increase in crushing volumes is driven by greater sugarcane availability from expansion planting activities and higher effective milling days due to dry weather. This has led to higher volumes and better dilution of fixed costs.
Q: How is the company managing its debt position?
A: Emilio Gnecco, CFO: Net debt has decreased by 26% compared to the same period last year, due to better operational results and a financial strategy in Argentina. Our net leverage ratio is 1.3 times, showing strong capacity to repay short-term debt with cash balances.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
