Brazilian Companies Cut Costs to Drive Profit in Year of Crisis

08/14/2015 - 09h24

Large Brazilian companies that have braced themselves for the economic crisis, have gained efficiency and succeeded in raising earnings in their business in the first half of 2015 compared to the same period in 2014.

The improvement occurred despite the fall in revenue from sales. This shows that companies have been able to reflect the increase on prices, in addition to cutting administrative costs and expenses.

A survey put together by Insper (Institute of Education and Research) at the request of Folha based on data from Economatica, shows that companies that are part of Ibovespa have grown by 9.3% in the so-called operating profit (EBIT, or earnings before interest and taxes) in the first six months of this year compared to the first half of 2014.

Revenue, however, fell 0.3% in this comparison. The drop is even greater if one considers the inflation of 8.89% for the IPCA accumulated in the 12 months up to June.

Net income, calculated after discounting the effect of taxes and interest and exchange rates, fell 7.9%. The fall is explained by the impact of foreign exchange on corporate debt.

For now, the effect is only on the numbers because it may be mitigated until the debt is due to be paid, with hedging and revenue in dollars.

The data considers 40 companies of Ibovespa that had reported their results on Wednesday (12), with a representation of 74% in the index.

"The result shows that companies have made improvements to their operational side, anticipating a worsening in the economic environment," says Michael Viriato, coordinator of the Insper finance lab.

"Companies will adapt to scenarios. They have contained costs and streamlined processes to go through this challenging period," said Reginaldo Alexandre, president of APIMEC (Association of analysts).

This occurred, for example, to the food manufacturer BRF and petrochemical Braskem. BRF cut costs and expenses in the production, storage and distribution areas. Braskem already increased the use of the existing capacity and benefited from more favorable input prices.

INFLATION

If banks, which has their profits influenced by the rising interest rates, and the giants Vale and Petrobras, which have been affected by the fall in commodity prices are excluded from the calculation, the survey shows that companies were able to keep their incomes above inflation. On average, the increase was 12.63%.

"Probably they could not fully pass on the high prices, but at least increased revenue in the same inflation level," Viriato says, recalling that revenue is not only formed by prices but also by the volume of sales.

With the help of increased sales, these companies have increased the operating profit by 16.83%.

The end result that pays shareholders and enables reinvestment in the business, has increased 4.08%.

"The final balances showed that companies are favoring efficiency and reducing leverage to get through this time," said Roberto Indech, an analyst at Rico brokerage.

In a semester of decline in industrial production, decrease in retail sales and a timid advance in exports, corporate results have actually surprised.

"It was not as disastrous as might have been expected. But the basis for comparison is not ideal," said Viriato, from Insper.

With World Cup and demonstrations, the second quarter of 2014 was weak for companies.

Translated by CRISTIANE COSTA LIMA

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	Charles Guerra/Agência RBS/Folhapress
	The food manufacturer BRF cut costs and expenses in the production, storage and distribution areas