Vibra (VBBR3): Oil decline lowers inventory value and margins in the first quarter

The vibra (VBBR3) had a First Quarter Results Rated “weaker than expected” by analysts. According to them, the main trigger for this was the drop in the price of oil, which directly affected the company’s inventories.

“As the industry worked with excess inventories earlier in the year and awaited the full reintroduction of taxes, the decline in diesel and kerosene prices had a bigger impact on margin than we expected,” contextualizes Morgan Stanley’s lead team by Bruno Montanari.

Due to the volatility and in anticipation of the end of the ICMS fuel exemption, the company had increased its inventories. However, these led to a devaluation of the cargo and thus the value of the commodity – a barrel of Brent crude was trading for more than US$85 at the beginning of the year and is now less than US$75.

“Margins were negatively impacted primarily by inventory losses caused by price cuts for diesel, heating oil and aviation kerosene in late 2022 and the first quarter.” This was partially offset by an increase in gasoline inventories due to a partial federal tax return in February and hedging gains,” says the Itaú BBA team led by Monique Greco.

Vibra’s earnings before interest, taxes, depreciation and amortization (Ebitda) were R$688 million, with a margin of R$74 per cubic meter traded. A total of 9.2 million m³ were sold between January and March of this year.

Bradesco BBI notes that alongside margin, volumes were also below forecast, down 7.2% on a quarterly basis (partially seasonal). In the course of the year there was an increase in sales of 3.7%.

On the positive side of Vibra’s earnings, pundits generally highlighted cash generation.

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“Despite mediocre Ebitda, free cash flow generation was mostly positive, with total recurring cash flow of R$2.1 billion, after a negative R$204 million in the fourth quarter. This was mainly due to the R$1.6 billion relief on the week related to lower fuel prices due to price cuts implemented by Petrobras during the quarter,” notes the BBI team led by Vicente Falanga.

Vibra’s net debt therefore decreased to R$12.6 billion compared to the peak of R$14.8 billion in the third quarter of 2022. However, the leverage, as measured by the ratio of operating profit to net debt, is due to the decline in Ebitda, remained stable at 2.7-fold.

Vibra speaks of an improvement in margins

In terms of margins, sales executives stated that after a difficult start to the year, there has been steady improvement since February.

However, highlights weighing on this front include Petrobras’ pricing policy, which is a key factor, and the importation of Russian oil into Brazil — something that has been observed at some of its competitors.

“According to management, possible changes in Petrobras’ pricing policy are still a question mark and the company hopes to understand the impact on the market. At the same time, the increase in Brazilian diesel imports from Russia is considered by management to be small and limited to certain regions of the country,” commented the JP Morgan team.

As for the improvement in working capital, Vibra explained that maintaining this point depends on the behavior of prices.

“After a quarter of generating around R$2 billion in cash, one of the biggest doubts investors have is whether there is room to increase dividend payments. On the subject, management reiterated the view that the priority is to bring leverage down from the current 2.7x to a more comfortable level of between 2 and 2.5x,” the American bank said.

Finally, as for the rumors that Petrobras is interested in relaunching the BR Distribuidora brand, executives downplayed the issue. “From a legal point of view, we are certain there is currently no possibility that this will be changed,” said Managing Director (CEO) Ernesto Pousada.

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