Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tupy SA (BSP:TUPY3, Financial) achieved the highest adjusted EBITDA in the company's history, with a 19% growth year-over-year.
- The company implemented cost reduction actions resulting in annual gains of BRL250 million.
- Operational cash generation reached BRL413 million in Q2 2024, marking the best performance for a second quarter.
- Tupy SA (BSP:TUPY3) issued debentures worth BRL1.5 billion, demonstrating strong market confidence.
- New contracts and acquisitions have been secured, contributing to structural and permanent gains.
Negative Points
- Net revenue dropped by 5% compared to Q2 2023, primarily due to lower demand in the US and Europe.
- The devaluation of the Brazilian real and appreciation of the Mexican peso negatively impacted financial results.
- Net profit was only BRL18 million, affected by financial expenses and exchange rate fluctuations.
- The decision to reduce production led to lower dilution of fixed costs, negatively impacting margins.
- The global market uncertainties necessitated increased exchange rate protection, resulting in a negative effect of BRL168 million in financial results.
Q & A Highlights
Q: Concerning new contracts, how will they impact margin from now on? And also biomethane, what is the level of revenue, ROIC and margin?
A: These new contracts involve casting and assembly, offering better margins due to their sophistication. The biomethane projects are expected to generate higher margins than current levels, with revenue from selling fertilizers and biomethane.
Q: How will you take the generators from MWM to the US, considering the growth in data centers?
A: We supply cast and pre-machined components for large engines used in data centers. We are studying potential assembly in Mexico and partnering with WEG to expand our presence in the US market.
Q: Can you comment more about the hedging activity and its impact on financial expenses?
A: We increased our hedge activities earlier this year due to potential strengthening of the real. We don't expect significant future fluctuations and have adjusted our strategy accordingly.
Q: When should we see better volumes, especially in the export market?
A: We expect recovery in Brazil to continue, with a structural change in export volumes anticipated in the first semester of 2025. The US market should see a recovery and fleet renewal starting in 2025.
Q: Could you give more details about the main drivers for marine engines and agro business products?
A: Marine engines are used for work applications along Brazil's coast and in the Amazon. The agro business products, including bio-plants, have significant scalability potential, especially in regions with high pork and poultry production.
Q: Can you provide more details about the renegotiation of contracts and their impact?
A: The renegotiations address the need for price increases due to inflation, particularly in Mexico. These adjustments are now reflected in renewed contracts, providing better protection against cost increases.
Q: How do you see the recovery of off-road vehicles and the prebuy of heavy vehicles in the US?
A: Off-road recovery is linked to agriculture and construction sectors. We expect a recovery in construction due to infrastructure investments. The prebuy of heavy vehicles is anticipated in 2025-2026, driven by fleet renewal needs.
Q: When do you expect to reach the potential in billing announced yesterday?
A: We expect to reach this level by the end of 2025. The growth is driven by successful projects in heavy trucks and pickup engines, with positive demand in Brazil and South America.
Q: How sustainable are the current margins in the future?
A: We aim to stabilize margins at 14-15% in the future, driven by cost control, efficient asset utilization, and selective high-margin projects. We are building a larger, more efficient company with better results.
Q: How much of the operational cash generation is recurring?
A: The operational cash generation was the largest in the company's history, driven by efficiency in working capital and contributions from Mexico and MWM. We expect continued strong performance in Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
