Natura Cosméticos (NATU3) Q2 2024 earnings summary

Executive summary

• Avon Products, Inc. (API) filed for voluntary Chapter 11 in the US to address debt and liabilities, with Natura &Co as the largest creditor supporting the process through $43M in DIP financing and a $125M bid for Avon's non-US operations; no impact is expected outside the US.

• Natura &Co reported strong Q2 2024 results, with double-digit sales growth in Brazil, signs of Avon brand turnaround in the region, and continued simplification efforts; brand separation studies are paused until the Chapter 11 process concludes.

• A one-off non-cash tax write-off of BRL 725 million related to API's restructuring resulted in a reported net loss of BRL 859 million, though underlying net income improved to BRL 162 million from a BRL 219 million loss in Q2-23.

• Natura Cosméticos issued a BRL 1.3 billion green bond maturing in four years, supporting sustainability initiatives.

Financial highlights

• Q2 2024 consolidated net revenue rose 5.7% YoY in constant currency, with 10.0% growth in Latam and 8.4% in BRL, driven by strong performance in Brazil and stabilization in Avon Brazil.

• Adjusted EBITDA reached BRL 804 million (10.9% margin), up 14% YoY, with margin expansion in Latam (+110 bps) and contraction at Avon International (-180 bps).

• Gross margin improved to 64.5% (+50 bps YoY), with Latam at 65.3% (+110 bps) and Avon International at 61.1% (-220 bps).

• Free cash flow improved by BRL 180 million YoY, though Q2-24 was BRL -675 million.

• Home & Style category saw significant declines: -20% in Spanish region, -42% in Brazil, and -27.8% in Latam, due to portfolio optimization.

Outlook and guidance

• Management expects leverage to decrease in H2 2024 as cash generation and EBITDA growth continue, with a focus on margin expansion, cash conversion, and sustainable topline growth.

• Strategic priorities include simplification, innovation-driven channels, and ongoing investments in marketing and growth projects.

• Bright prospects are expected for H2 2024, with strong sales trends and new product launches, especially in Brazil.