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Portobello (PTBL3) reported a 3.5% increase in revenue for the third quarter of 2025 compared to the same period last year, maintaining its gross margin at 14.3%. Despite challenging market conditions, including high interest rates and tariff impacts, the company managed to generate BRL 17 million in free cash flow. The stock, however, experienced a decline of 4.79% in recent trading, reflecting investor concerns over market conditions and future guidance.
Key Takeaways
- Revenue increased by 3.5% year-over-year, with a potential 9% growth excluding tariff impacts.
- Gross margin held steady at 14.3%, with EBITDA margin at 14%.
- The North American ceramic tiles market contracted by 5%, affecting Portobello’s export dynamics.
- The company is targeting efficiency gains of 7-12% through operational improvements.
Company Performance
Portobello’s third-quarter performance showcased resilience amid a challenging economic landscape. The company reported a modest revenue increase despite external pressures such as high SELIC rates and tariff challenges affecting imports to the U.S. The brand’s growth was supported by a 12% increase in exports and a 3.6% growth in the core Portobello brand. However, the Pointer segment saw a decline, highlighting mixed performance across its product lines.
Financial Highlights
- Revenue: Increased by 3.5% compared to Q3 2024.
- Gross Margin: Held steady at 14.3%.
- EBITDA Margin: Maintained at 14%.
- Free Cash Flow: BRL 17 million for the quarter, BRL 268 million year-to-date.
- Net Debt to EBITDA Ratio: 2.4x.
Outlook & Guidance
Portobello remains focused on its growth strategy in both the Brazilian and U.S. markets. The company is aiming for inventory normalization by early 2026 and expects efficiency improvements to contribute to future profitability. Despite current challenges, the company projects continued growth through 2026, with a strong emphasis on optimizing its debt profile through strategic funding initiatives.
Executive Commentary
John Suzuki, an executive at Portobello, stated, "We will continue to grow throughout the fourth quarter and throughout 2026. Maintaining that winning strategy, maintaining the profitability that we have observed." Financial Executive Caio highlighted the impact of tariffs, noting, "We lose competitiveness in that part that is imported from Brazil. We have lost two-thirds of that volume because of the tariff."
Risks and Challenges
- High SELIC Rates: Currently at 15%, these rates pose a significant financial challenge.
- Tariff Impacts: Tariffs have reduced competitiveness in the U.S. market, affecting import volumes.
- Market Conditions: The North American market’s 5% contraction and 25% idle capacity in Brazil present hurdles.
- Inventory Management: Achieving inventory normalization by early 2026 will be crucial.
- Debt Management: Extending the debt profile to 5.7 years is a strategic focus to mitigate financial risks.
Portobello’s third-quarter results reflect its ability to navigate a complex market environment, but challenges remain as it continues to adapt its strategies to sustain growth and profitability.
Full transcript - Portobello PBG SA (PTBL3) Q3 2025:
John Suzuki, Executive/Company Leader, Portobello: With our free cash flow. And because of the moment that we are undergoing with a higher leverage and with an increase in financial expenses. Caio will speak about this in greater detail. For successive quarters, we have a good level of free cash flow, and this is the direction we are following. Now, all of this permits a good outlook for the company, although we see a harsher market looking forward because of the macroeconomic scenario. I’ll give the floor to Caio to share those details with you. Good afternoon to all. Thank you, John. Here we see the North American market in the ceramic tiles consumption. We had a drop of 5% in the second quarter, but this is not the only important data. What is more relevant, and that is not very simple, is that the North American market is 70% importer.
Now, what happened with that tariff shock when the U.S. government announced the tariffs in April? They announced a tariff for all countries. Brazil, at that moment, had 10% of tariffs. In this movement, there was a term of 90 days for importers to adjust to this. What happened? There was this race to anticipate purchases from countries impacted by the higher tariffs. This led to a higher stock in the chain, hampering countries like Brazil, specifically Brazil, that had an increase in tariffs after this had happened. In the short term, Brazil started to work with logistic chains, thinking about stock, but we also thought of other strategies to export products to the U.S.A. In the long term, as well as in the short term, it reinforces our decision of having a plant in the U.S.A.
This gives us greater ability to continue on with this strategy to implement and localize our products. In the next slide, we speak about Brazil. In the case of Brazil, we see a market that is segmented: dry installation, wet installation. Now, the sales are also dropping here in the quarter. A drop of 1.7%. For wet production, 2.7% for dry production. Now, an indicator that is very important when the market presents an idleness of 25% in Brazil, we’re working at full capacity. Now, this is a differential that will be maintained vis-à-vis the market. Now, if we move on to the company’s operational performance, as mentioned previously, the business environment continues to be very challenging in the U.S. and Brazil. Now, disregarding this, we have increased the revenues 3.5% vis-à-vis the third quarter 2024. All business lines grew compared to the third quarter 2024.
Now, were it not for these tariffs, the growth would be 9%, and the revenue coming from these exports would have represented 26% of total revenue. A slight drop compared to the previous quarter, but this is the level we have observed in the last quarters. As mentioned before, all of our business units presented growth. Now, Portobello itself grows 3.6% versus the third quarter 2024, with a highlight for exports that grew 12%. Portobello Shop with a growth of 1.7% because of the brand strength and the premium portfolio. Now, a slight drop for Pointer, reduction of 3.3%, sustained by works of greater added value, where we’re not very present. In Portobello America, as mentioned, the situation is stable in terms of revenues vis-à-vis the third quarter 2024. If we exclude the tariff impact, growth would reach approximately 40%.
In the next slide, we’ll speak about our solid growth profit and growth margin. Despite this difficult, harsh scenario, we preserve our growth margin, similar to previous quarters, and we reach 14.3%. And not 8.9 percentage points growth in the U.S. operating margin. This shows that that operation was also impacted by the import tariffs. Let’s speak about EBITDA margin that demonstrates consistency vis-à-vis previous quarters. There’s a trade-off here between greater aggressiveness in our different business units, offset by significant industrial production and the expenses we’re carrying out in the company. We have been able to preserve our EBITDA at a level of 14%. When it comes to the net result, we are in a situation of loss, reflecting the high financial cost environment. The average SELIC in the third quarter was 10.5%. Presently, it has reached 15%.
In the second quarter, we have optimized our working capital. We focus on cash generation for the company as a whole. Let’s speak about our financial performance. This is the highlight of the quarter once again. Solid and disciplined cash management. We generated a free cash flow of almost BRL 17 million, BRL 268 million for the year as a whole. Eighteen-day reduction in the working capital cycle, and once again, disciplined CapEx. We have improved our days in inventory and working with suppliers, even with the impacts caused by the U.S. tariffs. With all of this, we are able to preserve leverage at a comfortable level, 2.4 times net debt over EBITDA, and we have enhanced the debt level. We had a shorter-term debt, a challenge in the third quarter 2024 with maturities in the short term.
In the third quarter 2025, our cash will cover the next two years and part of 2027 with a longer debt profile, duration of 5.7 years. This is the priority to improve our debt profile and to begin to obtain debt from promotion banks. If you have read the release, we did this with a bank for a seven-year period in the amount of $35 million. This is not included here. It is a subsequent event. These development bank loans are something we will increase through the coming quarters. I will turn the floor back to John to speak about the overall outlook. As I said at the beginning, we have shown consistency in the results of each of our businesses because of the impact of the tariff shock described by Caio. It is worthwhile underscoring that this tariff initially had a negative impact on the group.
We will be growing not at a level of 3%, but 10% in the third quarter, were it not for the impact of the tariff. This difference is a difference between the volumes we had projected before the tariffs and what we truly realized in the quarter. Now, it opens up a very positive outlook for the medium term for the operation of the U.S. The local production gains competitiveness because of these tariffs, regardless of their origin. Of course, Brazil suffered a much greater tariff, so the outlook there is positive. We do not observe this in the short term because of the increase in inventory mentioned by Caio.
We estimate that the stocks will be regularized in the chain in the United States and that this should happen at the end of this half of year or beginning of 2026, which makes the year 2026 positive for local production. In Brazil, we lose part of the exports, an important part of our business with the United States, but we gain in terms of the local production. There’s an interesting movement that happened. We were producing several products in Brazil that we could have produced in the United States, of course, but because of operational issues of our customers, we maintained these in Brazil. The tariff shock accelerated this and ended up taking this project to the United States. In terms of the market, removing the impact of the United States, what we see in Brazil should be repeated until the end of the year and in the coming year.
We don’t foresee growth for the coming year. There are some surveys that point towards an increase, but we believe that we will remain at the consumption levels we have at present. Dry production might grow somewhat in the coming year. We’re not counting with growth in the market in the fourth quarter nor in 2026. We’ll continue with the growth we have presented, gaining market share in the markets where we are active. In Brazil, yes, we maintain growth, but with a higher pace in the US, following the strategy we have pursued in the last few years. Internationalization, particularly to the US. In Brazil, we have a growth of 12%. We have had higher growths, and we will continue to grow the coming year in our exports as well. There is consistency in our business, consistency in our strategy. If we maintain this discipline.
The third quarter, as you might have observed, is the first quarter where we were not able to reduce our leverage since we took the commitment of gradually deleveraging. This happened because of the features, the tariff shock, the exchange of EBITDA that we had, and we already can see a more accentuated drop in the level of leverage at the end of the year. The commitment, of course, remains for a reduction in 2026. We will do this, maintaining our financial discipline with low investments, good levels of working capital, and a focus on free cash flow as we did this quarter. What I would like to especially underscore is that a month ago, we began a project to seek our efficiency in expenses. Quarter on quarter, month after month, you have seen that we maintain a discipline in expense management.
SG&A, costs, and other expenses, so that they are kept at an adequate level according to our revenue. We are doing this month after month through our management tools. In 2026, we have detected the opportunity of having a more structured efficiency gain. We have contracted a consultancy integration that has been working with us for a month, working on this more structured approach, looking at our expense structure in the company, pursuing efficiency all the way from simplifications, elimination of non-essential activities, and especially automations. Reducing expenses in automation, much lower than those we have at present. This is an important movement in creating our results for 2026, not quarter on quarter. We’re halfway through this work. We cannot estimate the amount of savings that we will attain, but this is work carried out by the consultancy. It’s a benchmark. Don’t consider this guidance.
Similar projects have been carried out in the market, allowing for savings of 7-12%. I’ll reiterate, this is not guidance. It’s simply a benchmark that we’re using in-house as reference to define our goal in terms of efficiency gains. It is an important movement. We will continue to grow throughout the fourth quarter and throughout 2026. Maintaining that winning strategy, maintaining the profitability that we have observed. Including the efficiency gains in the company, the outlook is positive, although from the market view, perhaps not so positive. From the business viewpoint, it is positive because of our track record in previous quarters. Very well. We will now go on to our Q&A session for investors and analysts. Should you wish to pose a question in writing, please use the Q&A icon while the Q&A session is on. Please watch a video of the Portobello America business.
Our first question comes from Mr. Mateus Izquierdo. He says, "Thank you for the presentation and congratulations for your third quarter results. Now, the expenses are a key factor with an impact on profitability. There’s a need to reprofile your debt at lower interest rates. This is an imperative. If you could, please comment on your present-day strategy and the strides you have made in liability management. The $35 million mentioned, was this funding granted by the BNDES, which interest rate, and how much do you expect to obtain from development banks, and which is your vision of the ideal composition of debt between commercial institutions and development banks?" Thank you, Mateus, for the question. Now, this strategy, and we have already mentioned it previously, that it is precisely what we mentioned. We have been able to.
Lengthen the debt profile we went to market, and this is a time to work with development banks, which will enable us to reduce the cost of debt. Besides lengthening our debt considerably, these are debts that we obtained in the first two quarters for a five- to seven-year term. It is not with BNDES; it is with a regional bank. The interest rate is a CDI and conditions very similar to the market. We believe it is an ideal condition between commercial banks and development banks. It is a good balance. This is our first initiative. We are going to obtain more funding from them. BNDES has a very good potential.
We have worked with some loan lines with them for significant amounts, and throughout the coming months and the coming year, we’re going to continue to capture these loans, better balancing our debt profile between commercial banks and development banks. Our next question comes from Mr. San Lorenzo. Good morning. Congratulations for your excellent results. Could you speak about the capacity of your plant in Portobello America? Thank you for the question, Lorenzo. In the third quarter, we operated at 85% capacity, and I’ll make the most of your question to remark that it was a very positive quarter from the industrial viewpoint. We have reached stability, a concern in this project, significant stability at the plant, be it from the viewpoint of quality of production or from the viewpoint of labor turnover, which was one of the challenges of this project.
I think we have been able to turn the page when it comes to the plant. Now, our concerns now refer to demand and inventories. These concerns are no longer connected to challenges we faced in the plant ramp-up. We would like to remind you that should you wish to pose a question, please use the Q&A icon. Please hold while we pull for questions. Our next question comes from Mr. Tiago Nascimento. Good afternoon. With the maintenance of PBA, can you capture a dollar at lower interest rates? Now, regarding your production costs, the purchase of gas in the free market, does this already allow you to have savings, what is the magnitude of the savings? Now, regarding this question on PBA specifically, we have already raised funds locally with a cost in dollars. This is a reality.
Of course, we want the plant to become self-sufficient in terms of funding. This is our strategy, and the growth of operations in the US will become a reality. Now, regarding the gas, unfortunately, because of the contract, we are not authorized to purchase from the free gas market that has more advantageous offers. It would allow for a material gain, of course, but I cannot share with you the quantitative impact that this would have. Once again, we would like to remind you, should you wish to pose a question, please use the Q&A icon. Please hold while we pull for more questions. Our next question comes from Mr. Mateus Izquierdo, which is the part of the sales of Portobello America that corresponds to products imported from Brazil, and which is the term in which products produced locally can represent.
The highest sales in the U.S. because the ceramic market in the U.S. is supplied through imports. Now, how has this dynamic impacted prices and competitive behavior? Mateus, thank you for the question once again. The project had been performing until the tariff shock came about. With 40-50% of products coming from Brazil, the rest was local production in the U.S. That was our goal, basically, to have that ratio. This is an important impact on the project. We lose competitiveness in that part that is imported from Brazil. We have lost two-thirds of that volume because of the tariff, with variations throughout the month. On the other hand, that has given thrust to the sales of local production, but with a minor impact so far because of the level of inventories anticipating the tariffs.
Now, because of this inventory level, we still do not see a practical effect demand for local production. So far, we have not significantly seen an impact on prices. This should happen as this inventory is emptied out. I imagine the inventories will normalize in the fourth quarter or first quarter of 2026. Through time, we will observe these effects: a higher demand, a much higher demand, because there is that imbalance of 30% local production, 70% impacted by the tariff, so that local production will be benefited. Through time, we will see the impact on prices. In our business, therefore, throughout 2026, we will begin to feel this. Now, from the viewpoint of our business. Initially, there will be an impact on volume of local production. In suing this, we will.
See inflation, perhaps, but an improvement in mix, increases in volume, and then increases in average prices. We would like to remind you that should you wish to pose a question, please use the Q&A icon. Please hold while we pull for more questions. Our next question comes from Mr. Daniel Chavez from GTI. Could you speak more about this pursuit of efficiency gains, which is the margin that you expect after. These efficiency gains? Will you attain that in the fourth quarter 2025 or only in 2026? Thank you for the question. As I remarked previously, we began that project merely four weeks ago. The project is still underway. We’re in the phase of mapping out opportunities. We truly can’t quantify what will happen. It’s an idea, but it’s still very difficult to. Refer to the magnitude of the impact it may have.
It is an accounting project for efficiency gain. We’re going to continue to pursue sales, to work with our strategy, but with greater efficiency when it comes to expenses. Now, the impact of this will be seen in 2026. We will not see this impact in the fourth quarter of 2025. We may have an impact in the fourth quarter of 2025. Some of those actions may be put in place in the fourth quarter. The trend is that they will have a negative impact because there’s always that initial cost of implementation of these projects so that then you can harvest the results going forward. We don’t think it will be anything very material, but it’s too early on to give you more information. Once again, should you wish to pose a question, please use the Q&A icon. Please hold while we pull for questions. Our next question.
Comes from Andre Prates, who says the fourth quarter webcast of 2024 said that the year 2025 would be a resumption of margins. Now, is this postponement due only to that tariff shock? Andre, thank you for the question. Our expectation at that point was that the main impact on profitability would be the evolution of our project in the U.S. As we matured from the viewpoint of the plant and sales, we saw an increase in profitability. As Caio showed you, we did have an evolution in gross margin, but this would, of course, impact the entire group. What we see at present is that because of this tariff shock, that evolution was cut short. Since the end of last year, and we have mentioned this in previous calls, since December of last year, we had reached an EBITDA breakeven at Portobello America.
This did not take place in the third quarter. We had a negative result because of the tariff, and this compromises profitability as a whole. Now, when we look at Brazil, we have been maintaining the profitability of our businesses, but it’s not what we observe in the market. The market is quite competitive at present. Supply and demand are very similar. There’s 30% of idle capacity, but the competitive environment has become ever more harsh. This is offset with the work that we carry out with a mix of channels or mix of products. It’s years, the last two years, last three years that were quite positive from the viewpoint of product launch and the performance of a better mix that we’re offering. We have made changes in the plants. We have made changes in outsourcing that make it possible to have this sales mix.
All of this has mitigated that effect. From the viewpoint of the market, there is a shrinking in margins and prices, speaking very generally. The question and answer session ends here. We would like to return the floor to Mr. John Suzuki for the closing remarks of the company. I would like to thank you all once again for your attendance. I hope that we have been able to clarify all of your doubts. We are closing, but I am sure other doubts will appear. Our team is at your entire disposal for clarifications. We will meet again during the next quarter. Thank you all very much. The Portobello Group video conference ends here. We would like to thank all of you for your attendance. Have an excellent afternoon.
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