Marcopolo S.A. (POMO4) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Marcopolo's conference call to discuss the earnings for the first quarter 2024. The presentation and comments on the results will be provided by Andre Armaganijan, CEO; Pablo Motta, CFO; José Antonio Valiati, Investor Relations Officer; and Eduardo Willrich, Legal and Investor Relations Manager. [Operator Instructions] This conference is being recorded and will be available on the company's Investor Relations website, ri.marcopolo.com.br, as will the presentation presented here. [Operator Instructions] Before moving on, we take this opportunity to emphasize that the forward-looking statements are based on the beliefs and assumptions of Marcopolo's management and are based on current information available to the company. These statements may involve risks and uncertainties since they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should take into account that events related to the macroeconomic environment, the segment and other factors, could cause results to differ materially from those in the forward-looking statements. We'll begin the presentation by handing the floor to Mr. Valiati. Please Mr. Valiati, you may go on.

Good morning, everyone. I would like to thank you all for joining our conference call to discuss the results of the first quarter '24. We are going to move on to Slide #4, where we are going to start with the highlights for the quarter. In the quarter, Marcopolo continue to review and hit results record even with a break in the bottoms of production and deliveries. The main highlights are: return on invested capital of 16.5%, reproducing the results of 4Q '23; gross margin of 23.3%; EBITDA margin of 19%; and net margin of 19.1%. Let's move on now to the next slide. In the first quarter '24, the Brazilian bus body production had a drop of 7.4% compared to the first quarter 2023. It's important to remind you that the first quarter of '23 established a strong production base considering the high volume of units directed to the Caminho da Escola program and the possibility of working with Euro 5 chassis, generating a concentration of volume in the first quarter '23. The rationale for Volare was the opposite. Because it is a full bus, we would have to have them completed by the end of December '22. That led to a drop in production in the first quarter '23, considering the low availability of chassis for Euro 6 at the time. Now we are going to go on to the next slide. In the first quarter '24, Marcopolo's production directed to the Brazilian market had a drop of 2.2%. Production for exports from Brazil dropped by 22.6%. And in international units, we had a drop of 15.3% in production. Production for the first quarter of '24 was affected by a lower volume of exported units, a lower volume of deliveries directed to the Caminho da Escola federal program in urban and microbuses segments compared to the first quarter 2023 and also a drop in volumes in Marcopolo Argentina. Let's move on now to the next slide. Net revenue consolidated reached BRL 1.656 billion in the first quarter, '24. The maintenance of net revenue compared to the first quarter '23 reflects a drop in volumes in the urban and microbuses segments, offset by a better sales mix, especially in the segment of intercity buses. Additionally, 259 units with production completed in the first quarter '24 were to be delivered to customers in the end of March. Considering that the recognition of revenues is completed at the time of delivery to the end consumer, there was a transfer of the revenue from those units, approximately BRL 303 million for the second quarter 2024. Now let's go to the next slide. Consolidated gross profit in the first quarter '24 reached BRL 385.3 million with margin of 23.3%. Gross profit was negatively impacted by the Argentinian company, our subsidiary, Metalsur, that had a negative impact of BRL 7.9 million due to the low volume of revenue. EBITDA was BRL 315.4 million in the first quarter '24, margin of 19%. EBITDA was positively affected by a better sales mix with growth of volume in the intercity buses segment as well as BRL 29.5 million as a result of the equity equivalents by the Metalpar Argentina subsidiary, in addition to the monetary adjustment because of the hyperinflation in the country. Negative impact was the drop in volume in the Caminho da Escola federal program. Net profit in the first quarter '24 was positive by BRL 42.2 billion (sic) [ BRL 42.2 million ], and benefited in BRL 25.2 million from the Argentinian subsidiary, Metalsur, that had a positive financial result also connected to the monetary adjustment of its balance sheet due to the country's hyperinflation, partially offsetting the negative impact of BRL 49 million of the fourth quarter 2023. In the quarter, the consolidated net profit was BRL 316.9 million with margin of 19.1%. Now I'm going to turn the call to Andre, that is going to talk about market scenario and projections.

Thank you, Valiati. Good morning, everyone. We are going to start talking about the intercity bus market, which was a highlight for the first quarter and should continue so in the year. Urban buses also saw strength, driven by the renewal of public transportation in several Brazilian capitals and we continue strong in the segment, especially with the products with higher value added. In the Caminho da Escola, we have the Volares delivered to the Caminho da Escola in the first half of this year. We continue to increase sales in the private sector, and start the first deliveries for the 2023. In this year, we delivered 322 microbuses and 141 Volares in 4Q '24 (sic) [ 1Q '24 ]. And you remember, we had that -- we won the concession bids in the end of '23. Remember that in the first quarter '23, Marcopolo delivered 1,200 units in the Caminho da Escola program. Let's go to the next slide. The company expects to grow exports in '24, resuming important packages, especially as of the second half of this year. International operations picked up in terms of recovering results, confirming our initial expectations for '24. Mexico continues positive results with Polomex with the growth of the bus market and the G8 model that was recently introduced in the market. In Australia, Volgren, where we have delivered planned volumes and continue with a good order book with prices adjusted after the pass-on of prices in 2023. MASA in South Africa continues with positive results, with prospects to increase volumes in the local market. Metalsur in Argentina faces challenges due to the low sales and production volume. But the operation was adjusted to lower demand, and we are waiting for the comeback of customers who have accumulated years of under-renewal. Let's go to the next slide. We see a positive bias for '24. We have a consistent order portfolio with a good mix. The potential of the market continues to be affected by high interest rates, but we consider we are going to have an even better scenario with the descending rates in Brazil. We had fewer days worked in the first quarter '24 to offset some holidays worked in '23. Generally, the first quarter is seasonally negative, and that should be a reality for '24. In the second quarter, we should show good increase in volumes from the brand [ upstarted ] in January and reached even better levels of capacity use. And we also expect more efficiency and leverage for the company. With a good volume, the company will start seeking new challenges, working with industrial automation, chassis and components. You have been monitoring the events of Rio Grande do Sul. We empathize with the families that were affected, but by strong rains in the quarter, and we are taking care of our team. Yesterday and today, we stopped our work, and we'll go back to work on Monday. Caxias do Sul plants were not affected, but we are monitoring the situation. And we believe that as of Monday, we go back to upgrade at full capacity. Now we are going to open for your questions.

[Operator Instructions] Our first question comes from Andre Ferreira from Bradesco BBI.

Congratulations on your strong results. I have two questions. One, some time ago, you talked about the plan of getting to a daily production of 60 buses a day. And our plans, it seems that it is enough, at least according to our projection in terms of year production. Where are you at this plan? Do you need any additional item to deliver those level of production? And the second question is about the 250, 260 units that were under shipment. Is it Caminho da Escola units? Or is it a mix? And have they been invoiced already?

Okay. I'll start answering your question, Andre. Thanks. In terms of production ramp-up, you know that months after months, we are increasing production. And yes, the 60 units are current numbers practically of the company. And we believe we still have room for some growth, and this has been done with trained and qualified people. And we are working on increasing efficiency to deliver higher numbers always, but we are delivering as planned. So there is a prospect of growth for the coming months, and we are working to meet our targets. So far, very well aligned with our plans.

And this is Pablo talking. About your question on the units under shipment, basically, these surpluses that were invoiced along the first quarter, however, their delivery was after the end of the quarter. And therefore, we are going to have this accounting adjustment according to our accounting principles of this volume on this quarter, and we show that in the report because it was a significant amount of buses from the Caminho da Escola that did not contribute to the revenue of this quarter.

Okay. If you allow me, I just have a follow-up question. Can we assume that part of the volumes projected for Caminho da Escola are going to go on to '25?

Well, Andre, considering the current scenario, we believe so. In fact, originally, we knew that for a concession, the size -- part of the volume was going to go to '25. And what we see is that as time goes by, this is confirmed, which, to us, is still positive because we are going to have a significant amount of Caminho da Escola in the beginning of the year in addition to all the volumes that we have for '24.

Our next question comes from Fernanda Urbano from XP Investments.

Congratulations on your results. We also have two. First question is about Argentina. Looking at market data, we understand that the bus sales dropped by 30% quarter-on-quarter. And you talked about adjustments in production to cope with the scenario of lower volume. I would like you to talk about the prospect for the coming quarters in terms of volume. I know it's hard to estimate, but just for us to have some color on that. And also just adjustment for low production. Can it generate a bottleneck of skilled labor when demand comes back? So that's the first question. Second question is price of raw materials. We see when we compare year-on-year, price levels, more normalized in some materials. I would like to hear if you have any pressure of prices down or demand is so imperative, and if you're keeping your prices despite the cost scenario.

Fernanda, thanks for your questions. I'm going to start answering about Argentina. It's very hard. The market says that the second half year is going to be a bit more positive for the bus segment. But we know that as time goes back and the fleet is not renewed, we have more opportunities. It is a relevant market for Marcopolo in terms of urban and intercity buses compared to other countries. Marcopolo has a very strong presence in the market. So our position having a local plant and also exports from Brazil really make our brands important in the market. So the renewal will come, but we don't know exactly when. And it is what you said, we adjusted structure. But at the same time, we are training and building capacity of our team to reproduce the [ G set ] model that we took to the market. So it is adjustment of a structure, but capacity ready to meet the demand of a fleet that was not renewed in the past. So to answer, we are going to be able to meet the demand with local production or with exports from Brazil. Pablo, please, if you could say a bit more about the Argentinian outlook.

Yes. In terms of repressed demand, if you take a look at the great Buenos Aires, the fleet age is about 11, 12 years on average. And there is an internal loan that would almost make it mandatory for people to renew. So there is a need for renewal. And as soon as the [ micros and area ] stabilizes, I think things are going to change. And in fact, the interest rate went from 130 to 50. So that should foster the market in Argentina and therefore, help carriers to renew their fleet for urban and intercity buses. The demand is quite depressed. And about costs, the pressures that we see at least so far are very much in line with our plans. We see commodities are so very much benefited by a super production of China and consequently, at least support the main inputs. We are not having a significant impact. And we are having, I would say, a stable environment in terms of price adjustments. Of course, we have to monitor that from close. There is work, especially for the steel segment to improve -- to adjust prices. But so far, we can see that compared to -- with regards to inflation of raw materials, the environment is quite well controlled.

Our next question comes from Gabriel Tinem from Santander.