Camil Alimentos burned through more cash than expected in the first quarter of its fiscal year, driving leverage sharply higher and sending its shares down 18% on Wednesday.
The Brazilian rice processor’s ability to reduce debt now depends increasingly on a recovery in rice prices during the second half of the year, analysts said.
Camil posted a working-capital drain of about $217 million (1.1 billion reais) in the three months through May. XP Investimentos had forecast an outflow of about $168 million (854 million reais).
Working-capital needs are typically high early in Camil’s fiscal year, which ends in February, as the company builds inventories. Still, the cash consumption exceeded expectations.
Higher freight costs also pushed up selling, general and administrative expenses, weighing on margins and operating profit. Lower prices offset the benefit of increased sales volumes.
Net debt rose to 4.7 times earnings before interest, taxes, depreciation and amortization at the end of May, from 3.2 times in February and 4.1 times a year earlier.
“The company is carrying high debt while interest rates remain elevated,” XP analyst Leonardo Alencar said. “That debt has a meaningful cost, and the outlook is highly dependent on external variables.”
The pace of deleveraging appears increasingly tied to a recovery in rice prices in the second half, he said.
Bet on Higher Rice Prices
Camil built inventories while rice prices were near their lows, positioning the company to benefit from a potential rebound.
Inventories rose to about $592 million (3 billion reais) on May 30 from $414 million (2.1 billion reais) at the end of February.
Higher selling prices would also help dilute SG&A expenses, which reached 20% of net revenue in the first quarter — the highest level in at least five years.
Chief Executive Officer Luciano Quartiero said rice acreage is likely to decline again in the next crop because prices remain below production costs and farmers face tighter credit.
The contraction is not limited to Brazil, he said during an earnings call. Similar conditions are emerging in neighboring countries where Camil produces rice, particularly Paraguay.
El Niño could further constrain supply by bringing above-average rainfall to southern Brazil and reducing crop yields, Quartiero said. Lower production would probably lift rice prices and improve Camil’s profitability.
Quartiero declined to give price guidance but pointed to previous periods when rice traded at 80 reais, 90 reais or as much as 100 reais per 50-kilogram bag. The current farmgate price is about 63 reais, below an estimated production cost of roughly 70 reais.
Management reiterated that it expects to comply with its leverage covenant at the end of the fiscal year in February 2027. Net debt must remain below four times Ebitda to avoid triggering the accelerated repayment of debt.
BTG Pactual analysts estimate that a recovery in rice prices to 80 reais per bag could almost double Camil’s net income by 2027, supporting the bank’s buy recommendation.
Bradesco BBI also maintained its buy rating, citing an expected further decline in Brazilian planted area, the risk that El Niño will reduce yields and an emerging recovery in international rice prices.
Camil shares closed down 18% at 4.41 reais on B3, the Brazilian stock exchange. The stock had climbed as high as 7.10 reais in April, which may also have encouraged investors to take profits after the results, Alencar said.
Camil was valued at nearly $730 million (3.7 billion reais) when it went public in 2017. Its market capitalization has since fallen 50.1% in nominal terms to about $363 million (1.84 billion reais).
This story was translated with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.
