SAO PAULO (Reuters) -Shares of Brazilian cosmetics maker Natura &Co plunged on Tuesday after it posted better-than-expected second-quarter core earnings but saw its bottom line weakened by write-offs as U.S. subsidiary Avon Products (NYSE:AVP) filed for bankruptcy protection.
WHY IT'S IMPORTANT
Natura &Co is a cosmetics giant that has been pushing for a turnaround and shedding global assets, including the sales of the Aesop and The Body Shop brands, as it turned its focus to Latin America to integrate Avon and its namesake brand.
BY THE NUMBERS
Natura &Co posted net revenue of 7.35 billion reais ($1.34 billion) for the April-June quarter, up 5.4% from a year earlier and above the 6.78-billion forecast by analysts polled by LSEG.
Adjusted earnings before interest, taxes, depreciation and amortization rose 14.2% to 803.5 million reais. Analysts expected 763.8 million reais.
KEY QUOTE
"We started to see a better trend in the top-line dynamics reflecting a strong performance of the Natura brand, with Brazil and Mexico accelerating pace," CEO Fabio Barbosa said.
API CHAPTER 11
Natura &Co said that Avon Products (API), a U.S.-based non-operating holding that it bought in 2020 as part of its acquisition of Avon, filed for Chapter 11 bankruptcy protection to deal with high debt.
Natura &Co is API's largest creditor and supports the move, committing to a $43-million debtor-in-possession financing and a $125-million offer to buy Avon's non-U.S. operations.
API's move led Natura &Co to post a net loss of 859 million reais in the second quarter, wider than last year's 732 million-real loss, mainly due to write-offs.
MARKET REACTION
Natura &Co's shares plunged more than 11% - the biggest faller on Brazil's benchmark stock index Bovespa, which was up 0.7%.
Santander (BME:SAN) analysts said the second quarter was mixed as better-than-expected Natura results in Latin America were overshadowed by Avon International's lackluster performance and API filing for Chapter 11.
"(That) could delay the Avon spin-off," they said, referring to a move Natura &Co has been considering to split the Avon brand outside Latin America.
($1 = 5.4929 reais)