São Martinho, a Brazilian sugar and ethanol producer, reported mixed results for its second quarter of the 2026/27 crop year. Revenue topped expectations, reaching $1.75 billion, an 11.46% beat over the forecasted $1.57 billion. However, earnings per share (EPS) missed significantly, coming in at $0.0636 compared to the expected $0.288, a 77.92% shortfall. The stock dropped 10% to $18.18 in after-hours trading, reflecting investor concerns over the earnings miss and weaker margins.
The company attributed the earnings miss to El Niño-driven rainfall, which disrupted production and compressed margins. Total recoverable sugars (TRS) fell about 7% below initial estimates, while produced TRS declined by nearly 11% for the year. This led to higher unit costs and lower profitability, with the EBIT margin falling to 5%. Despite these challenges, São Martinho maintained a strong liquidity position, with BRL 5.1 billion in cash and net debt at 1.75 times EBITDA.
Management highlighted that the quarter was one of the most difficult in recent years due to weather-related disruptions. While sugar and ethanol prices improved, the benefits were offset by lower production volumes and higher costs. The company also noted that its corn-based ethanol business performed well and is expected to become more important next year. Looking ahead, São Martinho lowered its production outlook for the crop year but expressed confidence in next year's harvest potential.
The market reaction was negative, with the stock falling closer to its 52-week low. However, the company's strong liquidity and undervalued stock metrics suggest that the selloff may be an overreaction to near-term headwinds. Management remains optimistic about the long-term outlook, citing exceptional field potential for the next harvest.