Tupy (TUPY3) Q2 2024 earnings summary

Executive summary

• Achieved record adjusted EBIT/EBITDA of BRL 395 million in 2Q24, up 19% year-over-year, with margin rising to 14.1% despite a 5% revenue decline to BRL 2.8 billion, driven by lower demand in the U.S. and Europe but without loss of market share.

• Strong operational cash generation reached BRL 413 million, the best Q2 performance in company history, supported by cost reductions, efficiency gains, and working capital management.

• Net profit was BRL 18 million, impacted by a BRL 168 million negative mark-to-market effect from exchange rate hedging and tax base effects.

• Strategic acquisitions, new contracts in Brazilian agriculture, aftermarket, and energy & decarbonization segments contributed to margin growth and future revenue.

• Investments in research, new business, and decarbonization projects are positioning the company for future growth.

Financial highlights

• Adjusted EBIT/EBITDA reached BRL 395 million, up 19% year-over-year, with margin rising to 14.1% (+290 bps); gross margin improved to 19.4% from 16.6% in 2Q23.

• Net profit was BRL 18 million, impacted by exchange rate hedging losses.

• Operational cash generation hit BRL 413 million, the highest ever for a second quarter.

• Cost of products sold dropped 8%, boosting gross margin by 280 bps; SG&A expenses reduced by 4% to BRL 240 million.

• Net debt at quarter-end was BRL 2.4 billion, or 1.84x LTM Adjusted EBITDA; cash and equivalents also BRL 2.4 billion.

Outlook and guidance

• Domestic heavy vehicle production is recovering, with truck output up 41% YTD, though still below 2021-2022 levels.

• U.S. and European markets expected to recover in 2025, with pre-buy activity in Class 8 trucks anticipated; 2024 production projections revised upward for North America.

• New contracts and bioplant projects are expected to drive higher margins and revenue from 2025 onward.

• Management expects sustainable profit margins of 14-15% in the coming years, with potential for further improvement.

• Ongoing structural adjustments and process revisions to increase production flexibility and margins.