Lavoro Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategy to-date: Outperformed Brazil retail inputs market with double-digit volume growth. Gross margins stabilizing for Brazil Ag Retail. Crop Care performed well with revenue and gross profit growth. Proactive recruitment of agronomists added $35 million in future net sales potential, with total potential over $150 million.
• Guidance revision: Brazilian farmer challenges due to price drops, drought, and risk aversion led to revising full-year 2024 projections. Crop year '24-'25 expected to see market decline but Lavoro expects to outpace with market share gains, margin improvement, and EBITDA growth.

Segment Performance

• Brazil Ag Retail: Revenue increased 5% to $450 million. Inputs revenue decreased 3% to $363.2 million, with volume growth offsetting input price deflation but impacted by drought. Grain revenue grew 61% to $86.8 million. Operation in Brazil Cluster South saw inputs revenue grow 9% Y/Y, while Cluster North had a 17% decline.
• Latin Ag Retail: Revenue increased 5% to $50.5 million, flat in Brazilian reais. Led by currency tailwind and 51% fertilizer volume growth, but offset by crop protection price declines and corn seed revenue drop due to drought.
• Crop Care: Revenue and gross profit grew 30% and 14% respectively. Agrobiologica (biological business) revenue up 57%. Represents 22% of year-to-date gross profit vs 16% in prior year.

Guidance

• Revised full-year 2024 guidance: Revenue $1.8B-$1.95B (USD), input revenues $1.6B-$1.75B (USD), adjusted EBITDA $46M-$55M (USD). For 2025, expected market decline but Lavoro anticipates margin improvement and EBITDA growth.

Risks

• Challenges include Brazilian farmer profitability issues, El Nino-induced drought affecting yields, input price deflation, and farmer risk aversion leading to delayed purchases.

Question and Answer

Q: About full-year 2024 guidance swing factors and revenue shift to 2025 Q1 A: Julian Garrido mentioned uncertainty in farmer behavior and credit procedures, with revenue shifting to Q1 2024-'25 as firm orders exist but need documentation and collateral alignment.

Q: About biologicals pricing and competition A: Julian Garrido stated pricing for biologicals expected to stabilize, with agrochemical prices likely to recover, and no expectation of heavier discounts going forward, while peers may also stabilize prices as market conditions evolve