Natura Sinks as Increased Spending Saps Profit: Sao Paulo Mover

Natura Cosmeticos SA fell to an eight-week low after earnings trailed estimates by the most since 2006 and the Brazilian cosmetics maker increased its planned outlays on marketing, advertising and other expenses.

The shares dropped 3.8 percent to 45.40 reais at the close of trading in Sao Paulo, the lowest since Aug. 30. The Ibovespa equity benchmark fell 1 percent.

Natura, whose door-to-door direct sales business model mirrors that of Avon Products Inc., posted adjusted net income of 183.7 million reais ($83.7 million) in the third quarter, according to data compiled by Bloomberg after the company released results yesterday. That compares with an average estimate of 228.7 million reais among analysts surveyed by Bloomberg, making it the biggest miss for the Itapecerica da Serra, Brazil-based company since the last quarter of 2006.

The cosmetic maker’s profitability was hurt by “massive investments” in advertising and free samples as well as higher logistics expenses in the third quarter, Grupo BTG Pactual analyst Fabio Monteiro wrote in a note to clients today. Natura raised its capital expenditures guidance for this year by 100 million reais.

Third-quarter sales, marketing and logistics expenses increased 17 percent from the previous year to 627 million reais, Natura said in a regulatory filing. Administrative, development, information technology and projects expenses climbed 22 percent. Revenue increased 12 percent.

Cash flow will probably “stay pressured” as the company boosts spending to fend off increasing competition in Brazil’s cosmetics industry, Monteiro wrote. Natura’s competitors in Brazil include Avon and Jequiti Cosmeticos.

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