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BMW-Shipper Tegma Tries Online Platform While Stock Drops

Online sales that are increasing at twice the global pace are luring Tegma Gestao Logistica SA (TGMA3), Brazil’s biggest shipper of new cars, even as investors punish the stock for shifting away from the company’s core business.

Tegma aims to double revenue from shipping packages, including orders through B2W Cia. Digital and other internet retailers, to about 50 percent of sales from 25 percent now, Chief Executive Officer Gennaro Oddone said, without specifying a timeline. The unit will break even by year-end and “show positive results” in 2014 after struggling with road robberies, high labor costs and integrating acquisitions, he said.

The logistics company, whose main business is transporting cars from Bayerische Motoren Werke AG (BMW) to Hyundai (005380) Motor Co., is betting rising Internet shopping will offset slower growth in the auto industry, Oddone said, as a weaker currency and rising interest rates pare demand. Tegma shares have fallen 33 percent this year and analysts have slashed their ratings since mid-February as the package-delivery unit’s performance caused profit to tumble in recent quarters. The stock rose 3.2 percent to 24.25 reais at 4:08 p.m. in Sao Paulo trading.

Photographer: Andrew Harrer/Bloomberg

An Bayerische Motoren Werke AG M5 vehicle is displayed during the 2012 North American International Auto Show in Detroit. Close

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Photographer: Andrew Harrer/Bloomberg

An Bayerische Motoren Werke AG M5 vehicle is displayed during the 2012 North American International Auto Show in Detroit.

“As in any new business that you enter, there is a stabilizing curve of the process and we’re in this phase,” Oddone, 53, said in an interview at Bloomberg’s Sao Paulo office. “Part of our negative results is linked to the accelerated process of expansion to be able to prepare the company for strong growth.”

Growth Potential

Brazil holds the most potential for online growth after China, with internet sales expanding an average of 29 percent in each of the past five years compared with 13 percent globally, according to the 2012 A.T. Kearney E-Commerce Index. Online purchases are still a fraction of those in the U.S. -- Kearney estimates Brazilians spend $10.6 billion a year now, while researcher eMarketer places U.S. internet purchases at about $259 billion. The U.S. has a population of 314 million, according to the U.S. census, compared to Brazil’s 191 million, according to the Brazilian government.

Tegma, located in Sao Bernardo do Campo, Brazil, said in May that first-quarter earnings before interest, taxes, depreciation and amortization, known as Ebitda, plunged 52 percent as rising costs in non-auto operations eroded a 10 percent gain in overall revenue.

Bigger Risk

Tegma so far hasn’t been able to reduce the unit’s high fixed costs, said Gabriel Gaetano, an analyst at Fator Corretora SA. As an example, he cited Tegma spending a lot of money to deliver packages to remote locations in the Amazon region, where the company doesn’t have the volume to compensate the effort.

“The company should reduce operations and try to make this business profitable,” Gaetano, who rates the company a hold, said in a telephone interview from Sao Paulo. “Theoretically, if you restrict your deliveries, your growth will be restricted, but you will make your operations more profitable.”

The bigger risk is security on the roads as robberies of cargo are “in fashion,” Oddone said. “Today our big challenge in this sector is risk management. There are areas with more or less risk and this is part of our investment in risk management intelligence to have the statistics to share with our clients.”

Analysts have been cutting their ratings on the stock since mid-February, when most recommended buying shares. Of the 14 analysts who rate the stock, seven now recommend holding it and one says sell.

Tegma, which controls about 20 percent of the e-commerce market in Brazil, will keep investing in the unit after spending 15 million reais last year to double the number of operating centers, Oddone said.

“We continue to bet on, and this is our focus, that these other segments will represent more accelerated growth opportunities than the auto segment,” Oddone said. “E-commerce is irreversible -- it’s not a trend that will disappear.”

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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