Inflation, exchange rate to set tone for earnings season
Macroeconomic issues, such as greater costs pressure as the inflation surges, as well as the appreciation of the real and rising interest rates, are expected to be the focal point of the first-quarter results of Brazilian companies. The rise in commodities, again, will also be a major factor.The reading of Brazil’s benchmark inflation index IPCA was 1.62% in March, above expectations, taking the 12-month indicator to 11.3%, more than three times the government’s target for the year. The foreign exchange rate, meanwhile, fell 14.6% during the first three months."The data from the beginning of the year have come better [than expected], exchange rate favoring a lot, commodities rising, exports rising, but inflation is a big challenge in the costs of companies," said Jennie Li, a stock strategist at XP.According to Bank of America (BofA), the companies that make up the Ibovespa will probably see a growth of 17% in revenues, 12% in EBITDA and 32% in earnings per share in the first quarter. Taking out companies from the power and basic materials sectors, revenues grow 15%, while EBITDA advances 1% and earnings per share rise 32%.Analysts David Beker, Paula Andrea Soto and Carlos Peyrelongue write that apart from commodities, companies in the financial and protein sectors will stand out, with names linked to economic recovery — such as airlines, distributors and shopping malls — also reporting good results."Some consumer discretionary companies will probably be able to expand revenues, but not profits. We are already seeing pressure on construction company margins," the bank said. Steel companies too are expected to report weak results, with pressure on costs and steel prices falling compared to the fourth quarter.Among companies that deal with commodities, the focus will probably be oil and gas, which saw a strong rise in barrel prices due to the war between Russia and Ukraine, further tightening the already restricted supply of the input. In total, Brent, in reais, was R$498 a barrel, on the quarter’s average, which mitigates the stronger real.As for mining companies, XP says that the iron price rose in the quarter, but the seasonal drop in production that takes place in the first three months of the year was aggravated by the heavy rains in Minas Gerais state, making the fixed cost less diluted. Steelmakers are expected to continue reporting weaker numbers in the quarter due to stable realized prices and lower volumes."The earnings season is...
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