Construtora Tenda (TEND3) Q2 2018 earnings summary

Executive summary

• Q2 net income was BRL 52m; 12-month ROE was 13.6%, with record net sales of BRL 481m during May’s Feirão da Caixa.

• Adjusted gross margin reached 36.5%, above the prior guidance range; 2018 gross margin guidance was revised to 34%–36%.

Financial highlights

• Sales totaled BRL 906m, equal to 52% of the midpoint of 2018 sales guidance.

• Cash generation was BRL 65m in Q2 and BRL 120m in H1; cash balance was BRL 1,657m at quarter-end.

• Cost savings from continuous site improvements offset recent raw-material cost increases.

Outlook and guidance

• 2018 gross margin guidance was raised to 34%–36%; management expects margin to ease in coming quarters due to raw-material pressure and a higher Faixa 1.5 mix.

• Positive cash generation is expected to continue, but below recent levels as working-capital gains moderate and expansion consumes capital; cash generation is expected to move closer to net income.

• Geographic expansion capacity is one new region annually from 2019, with three additional viable regions beyond the seven already served.

• Management views annualized Q2 ROE as unsustainable, citing seasonal Feirão sales and expected lower gross margins in later quarters.