UPDATE 3-Investors punish Brazil's WEG as Q3 shows fading revenue growth

Reuters
Updated 2-min read

(Recasts with share reaction, adds analyst comment)

SAO PAULO, Oct 25 (Reuters) - Brazilian motor maker WEG on Wednesday reported a third-quarter net profit broadly in line with market forecasts but flagged a slowdown in revenue growth that worried investors, pressuring the company's shares.

WEG stock tumbled more than 7% in early Sao Paulo trading, making it the biggest decliner on Brazil's benchmark stock index Bovespa, as analysts labeled the top-line trend a point of concern.

WEG, one of the darlings of Brazil's financial markets in recent years, posted net revenue of 8.07 billion reais ($1.62 billion) for the three months to end-September, up 2.1% from a year earlier but the lowest quarterly increase on an annual basis since the second quarter of 2017.

Analysts polled by LSEG had been expecting 8.43 billion reais.

"We believe today's set of results confirm our expectations of a deceleration in revenues," Goldman Sachs analysts led by Bruno Amorim said, "although contracting at a higher than expected level in the quarter."

The disappointing top-line figures, driven by lower demand for industrial equipment in Brazil, offset the quarter's silver linings, which included positive operating margins and return on invested capital (ROIC).

WEG's quarter was "efficient as always, but below expectations," Guide analyst Mateus Haag said.

"The challenging internal scenario has been negatively impacting net revenue, even as it manages to maintain its efficiency, as ROIC and EBITDA margin show."

Revenue fell 2.8% in Brazil on lower sales of solar power equipment and recent gains in the local currency against the dollar.

Revenue from operations abroad rose 7%, however, driven by higher sales to the power generation, distribution and transmission sector, WEG said.

WEG's shares have more than tripled in value since early 2019 as the company maintained positive results even during the COVID-19 pandemic, but are now down around 15% year-to-date.

The Brazilian company posted net income of 1.31 billion reais for the third quarter, up 13.3% year-on-year and in touching distance of the expectations of analysts polled by LSEG. ($1 = 4.9900 reais) (Reporting by Gabriel Araujo; Editing by Steven Grattan, Kirsten Donovan and Jonathan Oatis)