JPM-Intelbras Weak 3Q25 on Growth In All Segments；Eamings Beat Is Silver Lining-20251028

Intelbras reported a weak3Q25, missing JPMe and consensus on revenues and EBITDA, although beating on earnings. Revenues came in well below expectations in all segents, attributed to a mix of weaker macro, structural changes to the portfolio to improve returns and pressure in the solar market. On the positive side, earnings were ahead of expectations, suggesting that Intelbras’ efforts to improve ROIC are showing results. Moreover, working capital days continued to decline as promised, resulting in strong free cash flow generation. We believe the market reaction to these results should be negative, given the focus on top-line, but earnings revisions are likely not going to be that deep, given the gains in profitability. We remain OW.

•Financial summary: Intelbras reported a revenue contraction of -9.6% y/y,coming in below JPMe and BBG cons by -11.6%/-7.8% respectively. Gross Profit fell by -4.8% y/y, -9.5% vs. JPMe. Adj. EBITDA margin came in at 12.8% (vs. 12.9% JPMe and 12.7% cons), resulting in EBITDA -12.1% below JPMe and -7.3% cons. Earnings were up 14.3% y/y to R$148, coming in 10.0% above JPMe and 11.2% above cons, mainly on higher financial revenues, lower financial expenses and lower exchange losses.

•Positives: (1) Earnings increased 14% y/y reflecting the focus on profitability — see below a discussion on AVP; (2) Cash flow generation came in strong at R$426m (vs. R$136m JPMe) as an effect of working capital reduction, down from 38% of revs in 2Q to 36% in 3Q, vs. 37% JPMe; (3) ICT gross margin expanded 3.0pp q/q and 1.3pp y/y to 26.8%, as a result of a change in Intelbras’ commercial policies for discounts and payment terms; (4) Energy margin recomposition, up 2.5pp q/q to 25.7%, +1.5pp vs. JPMe, albeit this could be partially explained by lower solar on-grid sales on the mix, and potentially reverted in the coming quarters; (5) SG&A was down -6% y/y, coming -4% below JPMe, and management promised further structure reductions in 4Q.