Shares of 3tentos extended their selloff on Wednesday, taking their two-day decline to about 20%, after company executives warned analysts that second-quarter earnings from soybean crushing and biodiesel production would be significantly weaker than expected.
The stock fell more than 6% to 12 reais ($2.34) around noon in São Paulo, after tumbling 16% on Tuesday. The decline pushed the shares to their lowest level in nearly two years.
The selloff followed meetings between 3tentos executives and sell-side analysts at major banks. The discussions worsened investor perceptions of both the company’s near-term results and its communication practices.
Some analysts had already expected earnings to deteriorate as biodiesel prices weakened. The company’s comments, however, indicated that the decline would be considerably steeper than their forecasts.
BTG Pactual said in a report on Wednesday that 3tentos’ soybean-crushing business has historically generated gross profit of $80 to $90 per metric ton. The figure reached $106 per metric ton in the first quarter but may fall to about $75 in the second quarter.
If confirmed, the deterioration would reduce quarterly gross profit by about $20 million (100 million reais), BTG analysts Thiago Duarte and Guilherme Guttilla said.
The weaker outlook prompted analysts to revise estimates ahead of the company’s Aug. 14 earnings release. Some also lowered their expected returns for the stock.
Citi cut its price target to 17 reais ($3.32) from 20 reais ($3.91). Analyst Gabriel Barra said the company could also reduce guidance for its biofuels operations.
Previous forecasts assumed Brazil would implement a 16% biodiesel blending mandate, known as B16, but the increase has yet to take effect. The start of production at 3tentos’ corn ethanol facility has also been delayed.
The company had considered buying soybean oil from third parties to supply its biodiesel plant during its initial operations. That option no longer appears economically viable because soybean oil prices have risen while biodiesel prices have declined in recent months, Barra said.
Higher selling, general and administrative expenses are another concern after the cost line drew attention in the first-quarter results.
Long-Term Thesis Intact
Despite the earnings warning, BTG and Citi maintained buy recommendations, saying the long-term investment case remains intact.
“We see no reason to conclude that this deterioration is structural,” the BTG analysts said. “Margins in 3tentos’ industrial segment are inherently volatile, as the company’s own history shows.”
BTG expects consolidated second-quarter net revenue of about $782 million (4 billion reais), up 13% from a year earlier. Earnings before interest, taxes, depreciation and amortization are projected to fall 48% to about $22 million (115 million reais), producing a 2.9% margin — potentially the lowest in two years.
The bank said a roughly 15% decline in the company’s market value appeared excessive for a quarterly deterioration that should have limited implications for long-term profitability.
BTG also said the stock’s valuation of about six times projected 2027 earnings was attractive and unlikely to remain at that level over the next year.
Communication Concerns
The episode also raised concerns about how 3tentos communicates with investors.
The soybean-crushing business is relatively new to public-market investors and inherently volatile, making earnings projections more difficult, according to one analyst. Similar gaps between market forecasts and reported results have unsettled investors before, the analyst said.
The company’s meeting with selected analysts, without simultaneously disclosing its contents to other investors, also prompted questions about potential information asymmetry.
In response to an inquiry from CVM, Brazil’s securities regulator, 3tentos confirmed that the meetings took place but said the information discussed was already public and did not qualify as material information under CVM Resolution 44.
In a regulatory filing on Wednesday, the company said executives had discussed a more challenging agribusiness environment, including lower prices for soybean meal and biodiesel and higher costs, particularly freight. Any conclusions about the impact on 3tentos’ operating and financial results reflected the analysts’ own models and assumptions, the company said.
Meetings between companies and selected analysts are permitted and are common market practice. CVM Resolution 44, however, requires material information to be disclosed broadly through a formal market announcement.
3tentos has a market value of about $1.17 billion (6 billion reais) on B3, the Brazilian stock exchange.
This story was translated from the original Portuguese with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.
