Natura Sinks by Record After Margin Drop Puts Dividend at Risk

(Bloomberg) — Natura & Co Holding SA shares plunged the most since trading began in 2004 after the Brazilian beauty company posted margin results that were hurt by softness in the Argentina business, which cast uncertainty on the upcoming dividend.

Recurring Ebitda margin for the fourth quarter was 9.1%, a decline versus the previous year and below analyst expectations. Analysts also noted that inflation in Argentina hurt quarterly results. 

The stock dropped as much as 29% in Friday trading in Sao Paulo. 

“When I look at shareholder return, it’s much more about our margin expansion,” Chief Financial Officer Guilherme Castellan said on a Friday call with analysts. “This does not prevent us from paying dividend yields potentially, but it will be based on Ebitda expansion.”

A failure to provide more detailed guidance is also concerning, said Tiago Cunha, a portfolio manager at Ace Capital. 

“The lack of more quantitative guidance from the company raises the question of whether the effect is really temporary or if we have a trend that will be observed in the coming quarters,” he said.

Citigroup analyst Joao Pedro Soares noted a BRL450 million impact due to Avon’s Chapter 11 process. Potential setbacks from the Avon integration is a key risk that could prevent the company from achieving the target price, he wrote in a note. 

Natura needs to restore the market’s confidence in the company, Castellan said during a press conference on Friday following the analyst call.

“We need to return to expanding margins and show the company’s ability to generate cash,” he said.

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