Lavoro Limited Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Brazil Ag Retail showed robust year-over-year volume growth in competitive market conditions.
• Colombian operation gained market share.
• Crop Care achieved double-digit revenue and gross profit growth, driven by specialty fertilizers and adjuvants.
• Discussed factors impacting gross margins: input costs, farmer prices, and pricing trends with a 90-130 day inventory cycle leading to COGS lagging sales by 3-5 months.

Segment Performance

• Brazil Ag Retail: Revenue increased 1%, with volume growth in crop protection (46% y-o-y), fertilizers (63% y-o-y), and specialty products (29% y-o-y). Seed product revenue declined 11% y-o-y due to El Nino. Contribution from acquired companies Referencia and Coram was 6% of revenue growth.
• Latam Ag Retail: Revenue $55.8 million, down 2% y-o-y, affected by fertilizer and crop protection challenges, but offset by specialty products, seeds, and service sales.
• Crop Care: Revenue $72.8 million, up 26% y-o-y, driven by specialty fertilizer Integra (55% growth) and acquisition of Cromo Química (5% contribution).

Guidance

• Continues to foresee over 25% decrease in Brazil's retail input market for 2023-2024 crop year.
• Safrinha corn planting at 71% above five-year average.
• Crop Care expected to accelerate growth in third/fourth quarters, driven by specialty fertilizers and adjuvants, with biologics volumes lower than prior year.
• Latam business expected to be stronger in second half, less intensely competitive than Brazil.

Risks

• Input price deflation acting as a headwind to gross margins.
• Impact of El Nino on product mix and farmer purchasing behavior.
• Potential bankruptcy filings affecting farmer balance sheets in some regions like Mato Grosso and Goiás.

Question and Answer

Q: Factors in maintaining guidance?

A: Overall market decline above 25%, safrinha planting progress, and inventory normalization.

Q: Farmer balance sheets?

A: Some areas affected by drought, but not generalized; bad debt provisions already contemplated.

Q: Crop Care second half?

A: Acceleration in third/fourth quarters, growth in specialty fertilizers offsetting biologics decline.

Q: Latam business second half?

A: Stronger second half, less intense competition.

Q: Sales staff hiring?

A: Hiring in line with plan, experienced consultants expected to drive growth in next year.

Q: Pricing model?

A: Decentralized pricing with regional teams, centralized COGS negotiations.