Camil Alimentos S.A. (CAML3) Earnings Call Transcript & Summary

Good morning. Welcome to Camil's video conference to discuss the results of the Second Quarter of [indiscernible] Joining me [indiscernible] Flavio Vargas, Chief Financial Officer and Investor Relations Officer and the company's Investor Relations team. Please note that this event will be recorded [Operator Instructions] We would also like to clarify that any forward-looking statements that might be made during this conference call regarding Camil's business outlook, projections, and operating and financial targets, will they represent the beliefs and assumptions of the company's management as well as information currently available. They involve risks, uncertainties and assumptions that they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Camil's future performance and later results that differ materially from those expressed in such forward-looking statements. We will begin now with Mr. Quartiero's presentation followed by Mr. Vargas, and we will open the floor for questions in approximately 15 minutes. Thank you.

Hello, everyone, and welcome to the management's comments on the Second Quarter 2026 Results for the period ended August 2026. Starting with the second slide. Here, we provide a consolidated overview of our key indicators and categories. The second quarter saw raw material prices remained low in Brazil. but with signs of a recovery in prices, consolidated volume was 605,000 metric tons, down 5% year-over-year, mainly because sugar volumes normalized from the high base we posted last year and international prices that declined on a sequential basis, we recorded our second consecutive quarter of growth, up 2% from the first quarter. Net revenue totaled BRL 2.8 billion, down 7% year-over-year, reflecting lower volumes and declining international prices. EBITDA totaled BRL 225 million, with an 8.2% EBITDA margin, down 10% year-over-year, but up quarter-over-quarter. Gross margin rose 2.1 percentage points, reaching 24.7%. And matching the first quarter of this year. Moving now to the highlights of each segment, starting with high turnover products which include brains and sugar in Brazil, volume totaled 336,000 tons, down 5% year-over-year. This decline mainly reflects the normalization of sugar volumes as the Q2 2025 baseline included export volumes. In grains, volume grew year-over-year, driven by expansion plans implemented over the past few quarters, reinforcing that the commercial strategy revision continues to deliver results. Sequentially, volume rose 1%, driven by sugar. In the high-growth segment, which includes fish, coffee, cookies and pasta volume totaled 52,000 tonnes in the quarter, up 14% year-over-year with a positive contribution from all categories. and a 5% quarter-over-quarter increase driven by fish, pasta and coffee. Fish and coffee remain the main highlights of the segment. fish benefits from a structural and growing trend toward healthier consumption. Coffee in turn maintains a consistent development trajectory driven by portfolio growth new product launches and a steady market share gain, accumulating significant progress quarter after quarter. In the International segment, volumes totaled 27,000 tonnes, an 8% decline year-over-year. The decline was concentrated in Uruguay, reflecting natural quarter-to-quarter volume fluctuations, with more predictable volumes in the full year results. This effect was partially offset by volume growth in Chile, Peru and Ecuador, in addition to the contribution from Paraguay, which has been included in our results since Q3 '25. Sequentially, the segment volumes rose 3%, driven by Uruguay, Peru and Ecuador. The average net price fell 18% year-over-year. On a sequential basis, we saw a 4% recovery. In closing, we remain convinced that our leading brands, disciplined execution and well-defined value creation strategy together, they put us in a solid position for what lies ahead. The consistent delivery of volume growth is an important sign that the actions we have implemented are bearing fruit. I will now turn the floor over to Flavio for the financial results.

Thank you, Luciano. Starting with the year-over-year comparison. Net revenue for the quarter was BRL 2.8 billion, down 7% compared to the second quarter of 2025. In Brazil, revenue was virtually flat, up 1%, while international revenue fell 25%. And due to lower volumes and prices. The cost of goods sold fell 10% due to lower input prices during the period. As a result, gross profit rose to BRL 682 million, a 1% increase year-over-year with a gross margin of 24.7%, up 2.1 percentage points. Regarding operating expenses, SG&A accounted for 20% of net revenue, up 2.9 percentage points from the second quarter of 2025. It is important to note that the SG&A percentage of revenue is affected not only by expense growth but also by revenue dynamics. During the period, revenue was pressured by low rice prices and an eventual normalization will contribute to the natural dilution of these expenses as a proportion of net revenue. EBITDA totaled BRL 225 million, down 10% from Q2 25 with an EBITDA margin of 8.2%. Sequentially compared with Q1 '26, net revenue grew 4%, while COGS rose 3%. Gross profit increased 5%, and the gross margin improved by 0.2 percentage points. EBITDA rose 7.3% in the quarter. with the margin improving by 0.3 percentage points. Turning to the financial results. Net expenses totaled BRL 128 million in the quarter. up 10% from both the prior year and the previous quarter. The main positive factor was a nonrecurring gain of BRL 21 million from the settlement of sugar derivatives. This benefit was partially offset by higher interest expenses on loans, monetary adjustments related to litigation and a lower foreign exchange gain than reported in the same period last year. Regarding capital structure. Net debt ended the period at BRL 4.1 billion, with a leverage ratio of 4.7x net debt over LTM EBITDA, stable compared to the previous quarter. We should point out that Camil's working capital exhibits structural seasonality, particularly due to rise. The first quarter of the fiscal year typically requires more working capital and consequently entails higher cash burn. Whereas the remainder of the year typically sees a release of working capital. Our net debt over EBITDA covenants are calculated only in the fourth quarter, because of this characteristic seasonality of the working capital in our business model. CapEx for the quarter totaled BRL 53 million, down 66% year-over-year and 32% quarter-over-quarter, reflecting the normalization of investments following the completion of the Cambaí works of the Cambaí project and the return to maintenance levels. In closing and to reinforce Luciano's message, we are confident that our close relationship with customers, investors, consumers and partners, combined with the quality of our execution will continue to drive consistent results and strengthen Camil's position among the leading food companies in Latin America. We are now available for the question-and-answer session. Thank you all.

We will now begin the Q&A session for investors and analysts. [Operator Instructions] First question from [ Guilerme Gotilla ] with BTG Pactual.

We have 2 questions referring to high turnover products past related to price. I'd like to understand how you're seeing the rise prices because in Q2, we have not seen the price increase of the commodity yet. So do expect that we will see this in the coming 2 quarters? And my second question also in high turnover products now more related to sugar. We saw higher prices for sugar. And when this happened, your margins were a little compressed. So I'd like to understand the margins now, please.

Okay. Let me thank you for the questions. As for price, the big price recovery happened over the month of August, but our sales prices were more concentrated in the last week of August. So indeed the effect of higher prices on our sales will the impact was practically not seen in Q2, but we can see full impact in September. So like you said yourself, in Q3 from September to November, most likely in our Q4, the impact of this new level of price will become very clear. And since you asked about price I'd like to take this moment to say that the numbers announced for planting area, well, it's a smaller area. And for some quarters now, we have been voicing this concern the effect of El Nino on yield and planted area. So now we're starting the planting season in Rio Grande do Sul state, and rainfall has delayed planting a bit. So this impact starts to be seen in practice. But the months of November, December and January will be the size for us to measure the size of the impact that we will have on the crops. So I'm just making this comment because depending on the size of the impact, prices increase more than what we have seen so far. To your question regarding sugar with increase in prices, our margins since last quarter stayed at a lower level of profitability. We were able to defend that. So we did not see major impacts. I think the margins are very much in line with what we saw in the previous quarter. I think that the thing that impacted us a lot in the past was when international prices exceeded $0.25 now international prices.have fluctuated between '20 and '22. So I believe looking at our track record, when we exceed the level of '25, that's when we will start seeing a greater impact. on our profitability. So these would be my comments, Gallery.

Perfect. Very clear.

Next question from [indiscernible] Brustolin, with Bradesco BBI.

I also have 2 questions. First, about the international, we saw second quarter with a very strong gross margin, partially offsetting an environment of lower prices and SG&A leverage. But looking more towards the long-term EBITDA margin, 7.5% in the quarter is still low in historical levels. So my question is just I'm trying to understand what will be necessary to bring the company back to those historical levels of 2 digits. If we're talking about the recovery of rise prices that is starting now. And if there is any specific dynamic in any market that would need to be addressed to bring the levels back up. That's the first question. Second question about leverage. It seems that now the environment for deleveraging and result creation for the company is more favorable, considering prices and expected lower interest rates. So I just want to get a sense from you, which are you thinking in terms of the deleveraging trajectory in the coming years? And what would be your target for capital structure and leverage that would give you more comfort to start thinking again about growth projects.

[indiscernible], thank you for the questions. Indeed, in the international level, EBITDA margin was lower in this quarter, and this was impacted just like us in the Brazilian operations by declining prices. Price recovery bringing healthier levels of prices for the whole chain, not just for Brazil, but for the other countries as well. Well, that started -- that started to appear in September. Our expectation is that this positive effect of better prices in Brazil will also be seen in other countries. So our expectation is that profitability of the international area tends to be slightly above historical levels. The effect of higher or increasing rise prices has a similar effect to what happens here in Brazil. And I think that this is the main topic. Our operation in Peru has had low profitability in recent years with implemented a recovery plan there. And the margin has been improving over time. We had a gradual recovery of results in Peru. And with an increase in price, it tends to accelerate the process. So that would be the only additional comment on the international area. As for deleveraging, I think that there are a number of factors at play here contributing to accelerate deleveraging from now on, we have a lower level of CapEx. So this happened in Q1. We completed the major projects, particularly our new plant in Cambaí. In recent years, we also completed expansion of different plans for different categories. So we will have lower CapEx this year and in the next year. So this frees more cash to deleverage the company. Lower interest rates will also help us. And here, we don't know the pace of declining interest rates considering the current level of interest. But we had an improvement in results, which will also contribute to increase our cash generation. For a while now, we have worked on some assets that were not as profitable as we would have liked and which are not as essential for our operation. And the company is reassessing those. Such as a smaller plant at on [indiscernible] which we sold, and we are considering other assets that we could sell. So these 4 fronts will help us. And I think that the company can start thinking about other growth opportunities when leverage is below 2.5x. We expect to achieve that level. I don't want to create any expectations. I don't want to give you a deadline for that, but considering improved profitability, which generates cash. And all of the factors I mentioned, this reduction in leverage tends to occur in the midterm. So these are my comments [indiscernible].

Excellent, Luciano. It was very clear.

Next question from Ms. Julia Zaniolo with Bank of America.

I'd like to clear some that's regarding added value. We had sequentially an increase in price and volume, which was interesting. I'd like to understand how are you feeling the possibility of passing through prices in these categories because we have been discussing more difficult, more difficult opportunity for pass-through of price increases. And regarding volume in your strategy, you talked about a go-to-market strategy. What has worked and what has led to this volume increase? And do you think there's anything else that you can capture? We just want to understand whether there is room for you to gain more volume and market share.

Julia, thank you for the questions. In the high-growth categories, the dynamics are different. For example, in fish as we are in a scenario of a tight certain supply, and we are more worried about the volume we are going to have available in the end of the season until length. This is a category where a pass-through of what price pass-through happens more easily. Coffee has a declining trend given a production expectation, excluding any El Nino effect. And in the categories of cookies and pasta, we have an expectation of an impact coming from the price of wheat. But these are categories where price pass-through is more difficult. Overall, price pass-through in the current scenario is never easy. It has been a struggle, but it has been happening [indiscernible]. And I don't want to address the categories individually, but coffee and fish, we mentioned, posted a profitability above the historical level in pasta and cookies below, but the net result is positive for the category itself. And we can see that the current position tends to be maintained in the next quarter. In your question about growth, the company has put a lot of effort in this new go-to-market. We reaped the fruit over the first and second quarters. We have posted substantial growth in all categories. And the expectation is that we will continue to reap these fruits in the coming quarter. Every time we reach a new level, it becomes more difficult to replicate the same level of growth that we are having. But we see that with this new model, we have room to capture interesting growth. And one that will be significantly exceeding our historical growth. So I am personally very excited with our new way to go-to-market, considering the challenging scenario of income, the impact of high interest rates, how much interest rates are consuming of the families, households and how the betting platforms and the impact of this weight loss ends. Everything will bear an impact, but I think that we got this right. And I think that there is more fruit to be reached, Julia. So thank you for the question.

Excellent.

Next question from Mr. Bruno Tomazetto with Itaú BBA.

It's always good to speak with you. I have 2 questions. The first about this portion of increase in G&A with expenses related to promoters and promotional material. How are you thinking about the continuity of these initiatives looking forward? Because I understand that the counterpart is you've had gain of volume in high-growth categories and improved volumes. But after this initial traction, perhaps you could remove these incentives and the brands will continue to benefit from a value perception and customer acceptance. How should we think about these initiatives looking forward? And do you think that the structural gross margin should be running today without these incentives, if that is the case? And my second question is a quick follow-up on international and the capturing of those opportunities after Paraguay when we discussed competitive origination for Brazil and Paraguay and the opportunity for arbitration. So if you could give us an update on that regarding those gains, it would be great. And is there any opportunity looking forward with a slightly higher price for RISE with El Nino, triangulation, arbitration and everything else.