RD Saúde (RADL3) has reported an adjusted net profit of R$ 177.1 million for the first quarter of 2025, marking a 17% decline compared to the same period last year. This downturn highlights the challenges the company faces in a competitive market, as the net margin fell to 1.6%, a decrease of 0.6 percentage points year-on-year. The results, which take into account tax effects, were disclosed in a financial report released on Tuesday, May 6, 2025, according to Investing.
The company’s operational performance, measured by adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization), was R$ 644.1 million, reflecting a 5% decrease from the first quarter of 2024 and falling short of analysts' expectations, which had projected R$ 690.8 million, as reported by LSEG.
In light of these results, Morgan Stanley has downgraded its recommendation for RD Saúde shares from "overweight" to "equal-weight," reducing the target price from R$ 30 to R$ 20 per share. Analysts at the bank anticipate a challenging year for the pharmaceutical company, citing limited price growth and margin pressures as significant concerns.
The revision of the target price was primarily driven by an increase in the cost of capital, which rose from 13.3% to 15.5%, reflecting the heightened country risk. Morgan Stanley expects a decline in annual net profit, which diminishes the potential for stock appreciation in the medium term. Despite these challenges, the bank remains optimistic about RD Saúde's ability to consolidate its position in the Brazilian retail pharmaceutical market, projecting the opening of 340 new stores by 2032.
In a broader context, the first-quarter results indicate that RD Saúde’s sales performance was below expectations, contributing to a lower-than-anticipated Ebitda margin. The company noted that the Ebitda margin for the same quarter last year was atypically high at 7.0%, boosted by an extra sales day due to the leap year and a low provision for labor contingencies.
The net revenue from sales and services for RD Saúde reached R$ 10.051 billion, an increase of 10.4% compared to the first quarter of 2024. However, the adjusted net debt stood at R$ 3.515 billion, with a leverage ratio of 1.2 times the adjusted Ebitda over the last twelve months. This figure accounts for R$ 803.2 million in discounted receivables, R$ 3.7 million in advances to suppliers, and R$ 14 million in obligations related to options for purchasing remaining stakes in invested companies.
RD Saúde ended the quarter with a total cash position of R$ 470.2 million, encompassing cash and financial investments. However, the company’s stock has faced significant pressure, with shares dropping 9% to R$ 17.70 shortly after the earnings release, making it one of the largest decliners on the Ibovespa index.
Analysts from XP Investimentos have pointed out that nearly all financial lines have been pressured, leading to negative results that were well below expectations. Bradesco BBI echoed this sentiment, indicating a substantial difference from their estimates, noting a 30% decline in adjusted net profit and a 7% drop in adjusted Ebitda.
Among the negative highlights were same-store sales growth of only 3.4%, which fell short of inflation and was below the BBI’s estimated 4%. Additionally, the gross margin declined by 0.6 percentage points year-on-year to 26.6%, with net financial expenses exceeding projections by 17%. The cash cycle also increased by 4% to 63 days due to inventory and supplier issues.
Despite these challenges, there were some positive aspects in the report. The company managed to keep selling expenses aligned with estimates, growing by 4.4% year-on-year per store. General and administrative expenses remained stable compared to the previous year, benefiting from collective vacation gains and provisions for profit-sharing.
The outlook remains cautious, as XP highlights that the underperformance in mature store sales could raise concerns among investors, especially with another challenging CMED cycle (adjustment in medicine prices) expected next quarter. The gross margin’s decline is attributed to a mix of factors, including pricing investments and increased losses.
Looking ahead, RD Saúde aims to recover its usual growth levels in the upcoming quarters. The management has expressed confidence that the gross margin will improve, driven by inventory gains, seasonal factors, and fewer losses, alongside commercial gains from supplier partnerships to support a stronger promotional stance.
In April 2025, the company undertook significant adjustments to its corporate structure, which is expected to enhance efficiency and reduce general and administrative expenses. Despite the current volatility, JPMorgan has maintained an "overweight" recommendation on the stock, suggesting that the management’s proactive measures could mitigate negative reactions to the earnings report.
The market remains divided on RD Saúde, with consensus from LSEG indicating that among the 12 firms covering the stock, six recommend buying, four advise holding, and two suggest selling. This division reflects the uncertainty surrounding RD Saúde's financial recovery as it navigates a challenging economic landscape.
