Natura reports modest Q4 profit, weighed by Avon acquisition costs

Brazilian cosmetics group Natura & Co reported on Thursday a profit of 14.3 million reais ($3.1 million) in the fourth quarter, down from 381.7 million reais a year earlier, due to expenses related to its acquisition of Avon Products.

The results do not yet include revenue from Avon as the deal only closed earlier this year, creating the world’s fourth-largest pure-play beauty company.

Roberto Marques, the new CEO for the combined group, said that Natura’s profits will remain under pressure early in 2020 due to costs associated with the transaction.

“In Q1 (the costs) are still going to be significant and then they pretty much disappear,” Marques told Reuters in an interview on Thursday night.

Marques said it is monitoring broader trends that could affect the company, mainly the coronavirus outbreak around the world, a weak Brazilian real and the potential slowing of Latin America’s largest economy.

“There will be an impact in our business,” Marques said.

He said that the acquisition of Avon had provided a “natural hedge” for Natura going forward. While Brazilian reais accounted for 70% of the company’s revenue in the past, it is now down to 30%. Avon has brought in revenue in strong currencies such as the sterling pound and the euro, with some additional exposure to the Mexican peso.

But Marques noted that they remain little exposed to Asia in general, which has been the hardest hit by the coronavirus outbreak.

On economic growth, he forecasts the company will grow faster than Brazil’s GDP, at a time when many banks have revised their 2020 forecasts downwards.

The negative global context, however, has not affected Natura’s expected cost-savings. Marques said they still expect annual cost savings of between $200 million and $300 million for the next three years due to the Avon acquisition.