By Brazil Stock Guide – Mounting operational problems and execution risks in the integration of the Natura and Avon brands prompted S&P National Ratings to revise the outlook on Natura Cosméticos SA (NATU3) to negative from stable, while reaffirming its brAAA issuer and debt ratings.
The action, announced Monday, reflects the possibility of a downgrade over the next 12 months if profitability and cash generation fail to recover, according to an S&P report dated July 27. The agency also maintained the br3 recovery rating on Natura’s debt, corresponding to an estimated recovery of 60% in a hypothetical default.
S&P expects the Brazilian beauty group’s performance to remain under pressure in 2026 due to transformation expenses, costs tied to brand integration and operational disruptions. Sluggish or declining household income in Natura’s main Latin American markets adds another layer of risk.
The agency said recurring integration difficulties could keep the company’s Ebitda margin below historical levels and push net debt to Ebitda consistently above 2 times. Free operating cash flow, or FOCF, could also remain weak as a percentage of net debt.
Supply bottlenecks weigh on 2026 results
Natura has faced product shortages after implementing new internal systems and reallocating production lines following the closure of a factory. S&P expects the disruptions that affected the first and second quarters to ease over the coming months, although their impact should weigh on full-year results.
The company’s portfolio simplification has also yet to deliver the expected financial improvement. S&P said the sale of Avon International addressed Natura’s most significant operational problem, but restructuring expenses and weaker-than-market growth could threaten the company’s leading position in Brazil.
S&P projects consolidated revenue of R$21.1 billion in 2026, down 3.3% from R$21.8 billion in 2025. Revenue is expected to recover by 4.3% in 2027 and 5% in 2028, reaching R$23.1 billion.
The agency estimates recurring Ebitda of R$2.47 billion this year, compared with R$2.71 billion in 2025. The Ebitda margin is forecast to narrow to 11.7% from 12.4%, before recovering to 12.3% in 2027 and 12.7% in 2028.
Growth from digital initiatives, closer coordination between Natura and Avon and the relaunch of Avon in Brazil and Mexico are expected to support the recovery from next year.
Consultant base remains under pressure
The second phase of Natura and Avon’s Latin American integration, known as Wave 2, began in 2023 and was completed in 2025, with Mexico and Argentina among the final major markets included.
Although productivity per beauty consultant improved, S&P said the number of consultants continues to decline across all markets. Profitability also remains well below historical levels.
Natura is focusing on new Avon products and strategies to stabilize its consultant base in Brazil and other major markets. Execution failures in that process could significantly reduce earnings and free cash flow.
Natura has traded under the NATU3 ticker since July 2025, when it completed the incorporation of Natura &Co Holding and returned to the code used after its original public offering. Natura investor relations
Leverage expected to peak in 2026
S&P forecasts Natura’s adjusted debt-to-Ebitda ratio at 2 times at the end of 2026, up from 1.9 times in 2025. The metric is expected to improve gradually to 1.7 times in 2027 and 1.5 times in 2028 as margins and cash generation recover.
Free operating cash flow is projected at R$196 million this year, compared with a negative R$480 million in 2025. After adjusting for lease-related capital expenditure, the 2026 figure falls to R$57 million.
The company is expected to suspend dividend payments in 2026 while spending about R$150 million on share buybacks. S&P forecasts dividends equivalent to 30% of the previous year’s net income in 2027 and 2028, provided leverage remains controlled.
Capital expenditure is estimated at roughly 1.5% of annual net revenue over the next three years.
Liquidity offers protection
Despite weaker operations, Natura retains a significant liquidity cushion. The company held R$2.4 billion in cash and equivalents as of March 31, while S&P estimates funds from operations of R$1.6 billion over the following 12 months.
Expected uses of liquidity include R$480 million in short-term debt, R$1.1 billion in working-capital outflows, R$320 million in capital expenditure and almost R$200 million in dividends and share repurchases.
S&P said available sources exceed projected cash uses by nearly 90%. Natura also has no financial covenants attached to its debt.
The agency could restore the stable outlook if Natura delivers a substantial improvement in profitability across Brazil and Spanish-speaking Latin American markets, keeps leverage below 2 times and generates at least R$500 million in positive free operating cash flow.
A downgrade could occur if the operational recovery fails to gain traction, Latin American consumption remains weak and inflation continues to erode disposable income. S&P said such a scenario would likely keep Ebitda margins near current levels, produce negative free cash flow and increase nominal debt.
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