By Brazil Stock Guide – Brazilian corporate earnings surprised to the upside in the second quarter as domestically focused companies delivered strong results and commodity exporters posted a partial rebound. The figures come from Valor Econômico, which compiled results from 386 non-financial companies, excluding Petrobras (PBR; PETR4.SA) and Vale (VALE; VALE3.SA).
According to Valor, aggregate net income more than doubled year over year, helped by lower financial expenses amid a weaker dollar, while revenue rose 9.6% to R$1.02 trillion between April and June. Even so, early signs of a slowdown are visible: Q2 marked the second straight drop in gross margin and the third consecutive decline in operating margin, and revenue growth decelerated versus Q1’s 13.9%.
Policy uncertainty also clouds the outlook. Tariffs imposed by the current U.S. president, Donald Trump, and the prospect of further measures are weighing on sentiment, notably for Brazil’s U.S.-exposed exporters. A short-term relief came from exemptions on hundreds of products, including Embraer (ERJ; EMBR3.SA) aircraft, which temper the impact of the 50% levy cited by Valor’s reporting.
Sector performance
Apparel retail led gains, buoyed by a harsher winter and a soft base after last year’s floods in Rio Grande do Sul. Lojas Renner (LREN3.SA), C&A Brasil (CEAB3.SA) and Guararapes (GUAR3.SA), owner of Riachuelo, were standouts. “The economy is still strong, unemployment is low, and income and wages are rising, which has supported discretionary consumption,” said Fernando Siqueira, head of research at Eleven Research. “High rates do hurt, but they haven’t weighed as much on spending.”
Health care, low-income housing, education, transport, and food & beverage also topped expectations. Exporters of mining, oil and steel lagged amid a stronger real and weaker international prices. “Commodity exporters showed a partial recovery, especially in mining and pulp & paper, with better volumes and cost reductions offsetting lower prices,” said Victor Penna, head of research at BB Investimentos (Banco do Brasil: BBAS3.SA). “Steel should remain pressured by record steel imports into Brazil.”
What analysts say
“It was a very good earnings season; we saw robust results and a high share of companies beating expectations,” said Fernando Ferreira, chief strategist at XP Inc. (XP). “There was fear of a sharper slowdown, but companies are saying that was pushed to the second half.”
Ricardo Peretti, equity strategist at Santander Brasil (SANB11.SA), called Q2 “mixed”: “The glass-half-empty view is that commodity names underperformed; revenue was flat and Ebitda fell year over year.”
Companies have doubled down on efficiency and cost control to protect profitability in a high-rate environment, a key driver of positive surprises versus estimates, according to the interviews reported by Valor.
Outlook
Analysts broadly expect weaker Q3 results both year over year and sequentially. Rate-sensitive segments should feel the pinch of tighter credit, while income- and jobs-linked areas remain more resilient. “Discretionary sectors are slowing much more than staples tied to income and employment,” Ferreira said.
Weather could keep apparel retail supported into Q3, Siqueira added, while the external picture is tougher for exporters amid tariff uncertainty. “For outward-facing companies, the environment is worse because uncertainty around Trump’s tariffs continues and affects commodity demand,” he said.
In commodities, a seasonal tailwind may aid mining and pulp & paper, Penna noted. He added that Petrobras (PBR; PETR4.SA) should remain resilient despite softer oil prices, whereas fuel distribution depends on regulatory advances to curb illegal practices.
Company-specific exposure is acute for firms tied to the U.S. market. Taurus Armas (TASA3.SA; TASA4.SA) said it is “engaged in diplomatic talks in search of a negotiated solution” to mitigate tariff effects, according to the reporting.
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