Stoneco’s Earnings Call: Growth Amid Challenges

Stoneco ((STNE)) has held its Q3 earnings call. Read on for the main highlights of the call.

Stoneco’s recent earnings call painted a picture of robust growth tempered by caution due to macroeconomic challenges. The company reported strong growth in earnings per share (EPS), consistent capital returns, and expansion in return on equity (ROE), revenue, and banking operations. However, the call also highlighted challenges such as a difficult macro environment, increased financial expenses, and rising non-performing loans (NPLs). Overall, the sentiment was positive, reflecting a trajectory of growth with an awareness of external economic headwinds.

Strong EPS Growth

Stoneco reported impressive growth in its adjusted basic EPS, which reached BRL 6.9 per share, marking a 37% increase year-to-date. Additionally, the EPS grew by 31% year-over-year to BRL 2.57 per share. This growth underscores the company’s strong financial performance and its ability to generate shareholder value.

Consistent Capital Returns

The company has demonstrated a commitment to returning capital to its shareholders, distributing BRL 2.8 billion over the last 12 months. This equates to about a 10% yield for the period, with 74% of the BRL 3 billion excess capital already returned by the end of October. This consistent return highlights Stoneco’s focus on rewarding its investors.

ROE Expansion

Stoneco achieved significant expansion in its return on equity (ROE), with a consolidated ROE increase of 8 percentage points year-over-year to 24%. The financial services ROE from continuing operations also rose by 4 percentage points to 33%, indicating strong profitability and efficient use of equity.

Revenue and Income Growth

Despite facing challenges such as lower floating revenues, Stoneco’s total revenue and income grew by 16% year-over-year, reaching BRL 3.6 billion. This growth reflects the company’s ability to maintain strong performance in a challenging economic environment.

Banking Operation Expansion

Stoneco’s banking operations saw significant growth, with the active client base increasing by 22% year-over-year to 3.5 million. Client deposits also grew by 32% year-over-year, reaching BRL 9 billion, showcasing the company’s expanding footprint in the banking sector.

Credit Portfolio Growth

The company’s total credit portfolio grew by 27% sequentially to BRL 2.3 billion, maintaining strong credit quality. This growth in the credit portfolio is a positive indicator of Stoneco’s ability to manage and expand its lending operations effectively.

Macro Environment Challenges

Stoneco acknowledged the persistent challenges posed by the macroeconomic environment, which have affected performance. The company noted softer same-store sales and a deceleration in yearly growth, reflecting the broader economic headwinds.

Increased Financial Expenses

Financial expenses rose by 28% year-over-year, significantly impacting revenue percentages. This increase highlights the cost pressures faced by the company in the current economic climate.

Rising NPLs

The company reported rising non-performing loans (NPLs), with NPLs between 15 to 90 days reaching 3.12% and those over 90 days at 5.03%. This reflects portfolio maturation and specific client payment delays, indicating areas of concern in credit management.

Forward-Looking Guidance

In the earnings call, CEO Pedro Zinner provided forward-looking guidance, highlighting a 15.2% growth in adjusted gross profit year-to-date despite the impact of an ongoing share buyback program. The company maintained disciplined capital allocation, returning significant capital to shareholders and emphasizing financial prudence and long-term value creation. Zinner underscored a focus on disciplined operations amid challenging macroeconomic conditions.

In summary, Stoneco’s earnings call reflected a positive outlook with strong financial performance, marked by growth in EPS, capital returns, and banking operations. However, the company remains cautious due to macroeconomic challenges, increased financial expenses, and rising NPLs. The forward-looking guidance emphasizes a commitment to disciplined operations and long-term value creation, positioning Stoneco for continued success in a challenging environment.