Minerva SA (MRVSY) (Q2 2026) Earnings Call Highlights: Record Revenue and Strategic ...

Negative Points

• Minerva SA ( MRVSY ) experienced negative operating cash flow of BRL55 million in Q2 2026 due to significant working capital consumption of over BRL1 billion, driven by inventory buildup and accounts receivable.

• Net leverage remained elevated at 2.9 times net debt to EBITDA, reflecting the impact of working capital investments and a challenging credit environment.

• The company faces heightened volatility from geopolitical tensions, tariff restrictions, and logistical challenges, which could impact future performance.

• Potential restrictions on Brazilian beef exports to the European Union could negatively affect sales, though Minerva SA ( MRVSY ) can redirect volumes to other markets.

• The company's cash position of BRL15 billion is higher than its minimum target, leading to increased carrying costs and a drag on net debt due to the spread between cash yields and debt costs.

• Working capital consumption in Q2 was driven by longer receivable cycles in China, which may delay cash conversion and pressure liquidity in the short term.

• The company's EBITDA margin of 8.7% in Q2 was slightly lower year-on-year due to rising cattle prices, indicating potential margin compression.

Q & A Highlights

Q: What is the expected deleveraging curve and working capital dynamics for the second half of 2026? Will the EBITDA seasonality follow historical patterns? A: CEO Fernando Galletti de Queiroz stated that the company expects a similar dynamic to last year, with inventory sales concentrated in Q3 and rolling into Q4. He noted that the inventory position is currently even larger than on June 30, allowing for a potential realization of approximately BRL3 billion in the short term. This could lead to a reduction in leverage of 0.5 to 0.6 times, potentially reaching 2.2 to 2.3 times net debt/EBITDA by year-end. Regarding EBITDA, he highlighted that if the historical seasonality pattern holds, the full-year figure should be near or slightly above BRL5 billion, despite a slight margin reduction due to higher cattle prices.

Q: How will the company's geographic diversification mitigate the impact of China's quota restrictions on Brazilian beef exports? A: CFO Edison Ticle emphasized that Brazil accounts for only 55% of revenue, with 45% coming from abroad. If China closes to Brazil, the company can pivot to Argentina, Uruguay, and Colombia to maintain or even increase volumes to China. He stressed that all of Minerva's plants in Brazil are approved for the US market, a "restricted club" that will benefit if beef is redirected domestically, lowering cattle prices. The company's footprint in Argentina, Uruguay, and Colombia provides access to China with special conditions compared to Brazil, reinforcing the strength of its diversification strategy.

Q: What is the company's capital allocation hierarchy, and will it prioritize deleveraging, bond buybacks, or shareholder returns? A: CEO Fernando Galletti de Queiroz stated that the primary priority is deleveraging. Bond repurchases are a tool used to achieve this, as they reduce both gross and net debt simultaneously. He confirmed that while the company will pay the mandatory 5% dividend on net income, the main focus is on reducing debt to lower interest costs and create long-term value, especially given the high interest rate environment.

Q: Why did the company maintain a higher cash position of BRL15 billion instead of operating closer to its minimum cash level of BRL10-11 billion? A: CFO Edison Ticle explained that the strategy was adapted to the deteriorating credit scenario in Brazil. With capital markets closed to credit and banks becoming more conservative, the company decided to hold onto the proceeds from its recent bond and debenture issuances rather than immediately rolling over short-term debt. This conservative liquidity policy allows the company to capture arbitration opportunities created by market volatility and provides flexibility to pay off expensive debts if rollover costs become prohibitive.

Q: What are the boundary conditions for 2027, and how will potential EU restrictions on Brazilian beef impact Minerva? A: CEO Fernando Galletti de Queiroz stated that 2027 is expected to be very similar to 2026, with a potential 10% increase in the Chinese quota and possibly tighter global beef supply due to weather conditions in Australia. Regarding the EU, he acknowledged that restrictions on Brazilian products are likely, but noted that this would have a positive impact on Argentina, Uruguay, and Paraguay. For Minerva, EU sales represent a single-digit percentage of revenue, and the company can easily redirect those volumes to other markets, making the impact manageable.

Q: How is the company's feedlot and upstream integration strategy evolving, and what is the expected impact on results? A: CEO Fernando Galletti de Queiroz explained that the company is investing more in upstream models, with different optimal approaches for each region. In Q2, the company invested BRL125 million in biological assets. The impact of a single feedlot cycle is 3 to 4 months, but if the strategy is maintained, the capital return takes longer. The strategy provides predictability for supply, raw material quality, and assistance in cattle purchasing, particularly in Argentina where it makes full sense from both profitability and sourcing standpoints.

Q: What is the outlook for cattle availability in Argentina, Paraguay, and Uruguay for the next year? A: CEO Fernando Galletti de Queiroz highlighted that the impact for these countries is not just cattle availability but also market access. He noted positive dynamics in South America overall, with retention cycles and better supply cycles. The region benefits from a more favorable calf average, unlike the Northern Hemisphere which faces structural herd reduction. He expects increased exports and imports among Latin American countries, which is a strength Minerva benefits from due to its geographic diversification.

Q: Will the company maintain its expectation for working capital consumption of BRL300-400 million for the full year 2026, despite the BRL2 billion consumed in the first half? A: CFO Edison Ticle confirmed that the company will maintain the expectation outlined in the Q1 call. The significant working capital investment in Q2, driven by strong commercial activity in China and inventory rebuilding, is expected to mature and make a positive contribution to performance in the second half of the year, particularly in Q3 and Q4, with a release of working capital.

Q: Can you provide an update on the supplier finance and reverse factoring balance and strategy going forward? A: CFO Edison Ticle stated that credit lines are tighter for mid-to-long-term credits, but short-term instruments with underlying assets or guarantees, such as reverse factoring and working capital lines, remain very liquid with no issues. He noted that natural fluctuations in these credit lines are seasonal or business-related and do not indicate a change in availability, but rather reflect the company's strategy aligned with operational seasonality.

Q: Which origin currently has the biggest margin, and could this change in the second half of the year? A: CEO Fernando Galletti de Queiroz stated that the country with the biggest margin is where the company has the most competitive cattle prices, with Brazil currently leading. However, if Brazil stops exporting to China and China buys from other countries, prices in those regions will rise, improving profitability in Uruguay, which currently has the worst margins. He expressed optimism about improving overall profitability in the coming quarters due to the company's capacity to sell, inventory, and market dynamics.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .