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Why Is Cosan (CZZ) Up 4.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Cosan (CZZ). Shares have added about 4.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cosan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cosan's Q3 Net Income Drops 28%, Revenues Improve

Cosan’s adjusted net income totaled R$192 million ($48.7 million) in third-quarter 2018, down 28% from the year-ago tally of R$268 million ($84.7 million). However, net income surged 69% from R$114 million ($36.1 million) recorded in second-quarter 2018.

Revenues Increase Y/Y

In the reported quarter, Cosan’s net revenues came in at R$4,778 million ($1,211 million), reflecting year-over-year growth of 29%. On a sequential basis, the top line increased 17%.

The company operates under two business segments — Cosan S.A. and CosanLogistica S.A. While Cosan S.A includes RaizenEnergia, RaizenCombustiveis, Comgas, Moove and Cosan Corporate, CosanLogistica comprises the RumoLogistica business.

Rise in Cost of Sales Impacts Gross Margin

Cosan’s cost of sales and services sold in the third quarter marked a 42% year-over-year rise to R$3,406 million ($863 million). It represents 71.3% of net revenues versus 64.8% witnessed in the year-ago quarter. Gross profit dipped 5% year over year to R$1,372.2 million ($347.9 million), while gross margin shrunk 650 basis points (bps) year over year to 28.7%.

Selling, general and administrative expenses flared up 1.4% year over year to R$498 million ($129 million), representing 5.6% of net revenues.

Balance Sheet

Exiting the Sep-end quarter, Cosan’s cash and cash equivalents were R$4,023 million ($981.5 million), down from R$4,073 million ($1,301 million) reported at the end of the previous quarter. Loans and borrowings declined 0.8% to R$22,155 million ($5,405 million) from R$22,343 million ($7,137.7 million) in the year-ago quarter.

Cosan will benefit from its focus on simplifying corporate structure and restructuring actions.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

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