SLC Agricola SA (SLCJY) Q1 2025 Earnings Call Highlights: Record Revenue and Strategic Growth ...

GuruFocus News

Thu, May 15, 2025, 5:00 AM 4 min read

SLC Agricola SA (SLCJY) reported a 19.1% increase in net revenue for Q1 2025, reaching BRL2.3 billion, driven by a record volume of soybeans and cotton invoiced.
The company achieved a significant increase in adjusted EBITDA, reaching BRL943 million with a margin of 40.5%, and net income increased by 123.1% compared to the previous year.
SLC Agricola SA (SLCJY) has made significant progress in purchasing fertilizers and pesticides for the 25/26 crop season, securing a substantial portion of necessary inputs.
The company has strategically balanced its debt structure with a focus on long-term sustainability, despite an increase in net debt to BRL5.2 billion.
SLC Agricola SA (SLCJY) has a strong cash generation capability, with expectations to reduce leverage levels by mid-2026, maintaining a stable dividend payout strategy.

Negative Points

Cotton prices remain under pressure due to challenging macroeconomic conditions, including the ongoing trade war between the US and China.
The company's leverage has increased, with a net debt over adjusted EBITDA ratio of 2.27 times, influenced by recent investments and acquisitions.
Soybean and cotton yields were slightly below initial forecasts due to weather-related delays, impacting overall production efficiency.
The company faces uncertainties in the macroeconomic scenario, particularly regarding geopolitical changes and new tariffs that could affect trading strategies.
There is a risk of increased costs for fertilizers and crop protection inputs, with some molecules currently being sold at higher prices than the previous year.

Q & A Highlights

Warning! GuruFocus has detected 9 Warning Signs with SLCJY.

Q: How does the current macroeconomic scenario, including geopolitical changes and new tariffs, impact SLC Agricola's trading strategy, especially regarding exports to China? Additionally, with increased land holdings and higher interest rates in Brazil, what are the company's deleveraging perspectives? A: Evo Broom, CFO, explained that the company has prepared for this moment of increased leverage due to significant investments. The net debt over EBITDA ratio was below 2 times, and the board decided it was time to invest. The company expects to return to appropriate leverage levels by mid-2026, with no plans to reduce dividend payouts. Regarding the trading strategy, SLC Agricola has managed the trade war scenario by selling soybeans on the exchange and waiting for premiums, which has been beneficial. The company remains cautious, expecting market oscillations due to temporary agreements and geopolitical tensions.

Q: Are there any developments in monetizing land through joint ventures or partnerships to accelerate the deleveraging process? Also, what are the expectations for costs in the 2025-2026 season? A: Evo Broom, CFO, stated that joint ventures make sense but are complex due to the current interest rate environment. The company is open to partnerships but emphasizes finding the right partner. Regarding costs, SLC Agricola aims to maintain stable input costs, with expectations of reduced nitrogen prices due to lower oil prices and China's market entry. The company plans to maintain margins and expects results to grow with an increased planted area.

Q: What are the expectations for production costs and crop protection inputs for the 2025-2026 season? A: Evo Broom, CFO, mentioned that the company aims for zero increase in input costs, balancing price fluctuations among different fertilizers and crop protection products. The supply department is working hard to avoid price increases, and clarity on costs will be achieved by August or September once the hedging process is complete and planting areas are finalized.

Q: How does SLC Agricola view the risks and opportunities for its main commodities, such as soybeans and cotton, for the 2025-2026 season? A: Evo Broom, CFO, noted that the market is proceeding as expected, with a favorable tendency for soybeans. The company anticipates a better balance between soybeans and corn in the next season, with no significant excess in production. Cotton remains a high-return investment per hectare despite lower margins and higher risks. The company plans to continue expanding cotton planting due to its high yields and effective risk management.

Q: What is the company's strategy regarding leasing agreements, and how does it impact productivity and costs? A: Evo Broom, CFO, explained that leasing agreements are adjusted every 3 to 5 years, with recent adjustments reflecting market conditions. The company aims to maintain a balance between lease costs and productivity, ensuring sustainable agreements. The average lease cost is 16 bags per hectare, with variations depending on the region and crop type. The company remains critical and conducts due diligence before closing any deals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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