Earnings call transcript: Randon’s Q3 2025 stock rises despite EPS miss

Randon Participacoes SA (RAPT4) reported its earnings for the third quarter of 2025, revealing a mixed financial performance. The company’s earnings per share (EPS) came in at $0.0723, missing the forecast of $0.08 by 9.63%. Despite this, Randon’s stock price surged by 4.85% to $6.18, driven by a revenue beat and strategic market moves.

Key Takeaways

• Randon’s EPS missed expectations by 9.63%, but revenue exceeded forecasts by 2.08%.
• The stock price rose 4.85%, indicating positive investor sentiment despite the EPS miss.
• Strategic initiatives, including international expansion and market leadership, bolstered confidence.

Company Performance

Randon demonstrated resilience in Q3 2025, with net revenue increasing due to new business ventures contributing an additional $680 million. The adjusted EBITDA margin improved from Q2, signaling operational efficiency gains. However, the company’s market value declined by 35% compared to Q3 2024, reflecting broader market challenges.

Financial Highlights

• Revenue: $3.44 billion, a positive surprise of 2.08% over forecasts.
• Earnings per share: $0.0723, a miss of 9.63% against expectations.
• Market value: Decreased by 35% year-over-year.

Earnings vs. Forecast

Randon’s EPS of $0.0723 fell short of the $0.08 forecast, resulting in a negative surprise of 9.63%. This miss contrasts with the company’s ability to exceed revenue expectations by 2.08%, highlighting strengths in certain operational areas.

Market Reaction

Despite the EPS miss, Randon’s stock rose by 4.85% to $6.18, suggesting investors were encouraged by the revenue beat and strategic developments. The stock remains closer to its 52-week low of $5.16, indicating room for recovery.

Outlook & Guidance

Looking ahead, Randon maintains a cautious outlook for 2026, anticipating potential demand drivers such as record harvest estimates and fleet renewal needs. The company plans to continue its international expansion strategy, particularly in the Americas, to capitalize on market opportunities.

Executive Commentary

Daniel Hondon, CEO, emphasized the company’s resilience in challenging times, stating, "In moments of crisis, we feel unity." He also highlighted Randon’s commitment to innovation and sustainability, saying, "We are building a sustainable, innovative future."

Risks and Challenges

• The domestic truck market contracted by 30%, posing challenges for growth.
• A 35% decrease in market value year-over-year reflects broader economic pressures.
• North American demand reduction by 25% could impact future revenue streams.

Q&A

During the earnings call, analysts inquired about Randon’s international market strategies and potential CAPEX reductions. The company also discussed challenges in the trailer market and explored a consortium business partnership with Patria, highlighting its proactive approach to addressing market dynamics.

Full transcript - Randon Participacoes SA (RAPT4) Q3 2025:

Conference Moderator: Hello, welcome to the video conference for earnings of Randon regarding the third quarter of 2025.

¿Cómo está en inglés?

This event has simultaneous translation to English, interpretation in sign language. To hear the audio in English, click on the interpretation button located in the bottom bar. Following, select mute original audio to hear the translation. We inform that this video conference is being recorded, and the recording will be made available on our website for the investors, ri.brandoncorp.com. The information provided in this video conference is not a guarantee of performance, involved risks, and uncertainty because they are regarding future events and circumstances that might or might not happen. Going to today’s agenda, we will start with a message from our CEO, Daniel Hondon, bringing his strategic vision about the main movement of Random Corp in the first semester, and Paulo, the Vice President, CFO and DRI, will talk about the financial highlights. Following, we have Esteban Angeletti, RI Director, will talk about the results in the period.

Following, we have an essential moment to talk about the presented themes and clarify any questions that. Which is our Q&A session conducted by Davi Pasquetti, our RI Manager and Finances, that has Emerson de Souza, RI Director of Brazil Mobility, to participate. You can choose to ask your questions through the mic or in writing. The options to interact will be on the screen. Let us know if you want to participate at any moment. If your question is not answered during the event or in relation to the investor team, we’ll answer your questions later. Now, I pass the floor to CEO Daniel Hondon to start the presentations. Good morning, everyone. It’s a pleasure to be here to share the results of the third quarter of 2025. In this period, I took on the role of CEO of Random Corp and President of Frasley Mobility.

I’m even closer to the operations now. We’re going through a challenging moment in the business environment with a series of adversities that impact the demand, especially in commercial vehicles. Despite and with high interest rates and political adversity in different markets, we also face tariff wars, adding more uncertainty in our business or trade relationships. What I want to highlight today is that these obstacles didn’t paralyze us; on the contrary, they reinforced our determination to continue to advance. You were able to observe the numbers published yesterday, and soon will be detailed by Paulo and Stevan, that in this quarter, we restarted the profitability path despite the retraction in volumes in different segments where we act. This was only possible with the consistent work of our teams during the year.

We adjusted the structures, realized strategic capturings, and implemented measures to optimize our cash flow working capital to preserve our financial solidity to leverage preparing the company for the future.

Say that in moments of crisis, we feel unity. It’s not different this year. We would like to revisit processes, correct routes, and we continue to invest in what we believe in, in our people, in quality, technology, and sustainability, together with our stakeholders. We launched development programs for leadership, achieved international certifications. We opened a new energy substation in Frasley Mobility and Fresmax. We presented a unique vent to transform recycled plastic in a high-performance material. Also, we didn’t let go of investments in ESG. This week, we are at COP30 in Belém do Pará, together with other institutions and governments, seeking to fight against climate change and build a better tomorrow.

These continuous investments, aligned with the governance practices and continuous evolution, allowed us to obtain several de A de A o reingresso de nossas ações ao índice da B3, que é o IBRX100, o ranking Excel Award, importante premiação do mercado de capitais em que lideramos todas as categorias em small caps no setor de bens de capital, além de receber o título de Most Honor Company por nossa atuação consistente e transparente com nossos investidores. E aqui, eu quero aproveitar para agradecer a todos vocês que nos acompanham e que apoiaram a Random Corp nesse reconhecimento e tantos outros prêmios, como os melhores e maiores da exame na categoria bens de capital e eletroeletrônicos, o Suppliers of the Year, concedido pelo grupo Iveco.

Suppliers of the Year of Iveco Group, and great place to work, achieved by different business units of the company.

Confessando que em 2025 estamos correndo uma maratona cheia de obstáculos, mas cada passo dado reafirma nossa each step taken reaffirms our capacity to overcome with people that are prepared, solid strategy, and our values will not be negotiated. We are building a sustainable, innovative future. I pass the floor to Paulo to follow with the presentation. Thank you. Thank you, Daniel. Good morning, everyone that’s following us in this video conference. Starting with the market performance in this third quarter, I highlight that we had a retraction in the volume of production in trucks and trailers when we compare to the same period of the previous year, especially the macroeconomic scenario that’s challenged mission by Daniel. In the case of trucks, the decrease in heavy has intensified with a reduction of almost 30% of the volume sold domestically, facing the third quarter of the last year.

The OEMs have acquired measures to reduce their stocks, what reflects in the lower demand for auto parts. For the end of the year, we expect the anticipation of vacations in a few of them in the segments of trailers still in a lower level. We had a slight recovery in agri business compared to the second quarter of this year. After several months of decrease, it’s still early to talk about a trend, but we’re paying attention and ready to adjust our production with agility when necessary. And we had a reduction in the selling of tanks and the acceleration of the industrial in this period. Exports, trucks and trailers, we see an expressive growth pulled by Argentina and Chile, countries that the economy has seen evolution.

Regarding the spare parts for the company, we see or aftermarket, we see a passage of workshops and the sale of semi-new, which stimulates parts sales. This is a resilient segment that’s less cyclical. We have faced challenges like the change in behavior of dealers that have worked with a lower stock level to reduce their capital cost. This data reinforced the importance of diversification of our portfolio and international presence, pillars that have sustained our resilience in moments like this one. Overall, the scenario is of caution when we talk about the market, but we have our adjusted structures to the current level of demand. Going now to our main indicators, I highlight that the net revenue increased quarterly comparison pushed by new businesses that add 680 million highs to the indicator in this quarter alone.

Regarding EBITDA margin, adjusted EBITDA margin, we observe an important advance regarding the second quarter of this year due to the measures adopted to adequate our structures and the rigorous control of the realization of costs and expenses. This margin recovery shows the profitability comeback of the company very positive, considering the decrease in the markets where we act and the leverage financial leverage with the high interest rates. Regarding ROIC, I highlight that the performance of this indicator was impacted by the higher impact of capital invested and unusual expenses in the last 12 months. Now we bring to the screen the data regarding our net debt. As you can see in the third quarter of 2025, leverage of the company presented a reduction compared to the first semester. For this, we implemented several initiatives during the last months.

Amongst them, I highlight the following: the capturing together with the capital market through Frasley Mobility and the increase of private capital in Random Corp together added around 400 million highs in our cash. The rigorous control with new investments and the reduction of the need of cash working capital for reducing stocks, as well as negotiation together with the suppliers to extend the payment of the contracts of purchasing contracts. I remind that our financial commitments allow a leverage up to 3.5 times, excluding Random Bank and Proforma EBITDA of the last 12 months of the acquired operations. Provenance has as base the data of 31 of December each year. This moment or indicator is lower than its limit. Continuing, I bring now data about the profile of our debt at the third quarter of 2025.

I highlight that we continue to work in several fronts to improve these indicators with increase of medium deadline and the average debt. The efforts have brought results in this quarter. We continue committed with financial management that’s responsible, aligned to our strategy. In this sense, we realized in October that since the admission of the ventures from Frasley Mobility, the amount of 500 million highs in one series with a deadline to pay in five years, CDI rate 0.75 a year, resources will be used especially to pay debt with higher cost. Finishing my part, I bring data related to the performance of Random Corp and the capital market. Compared to the third quarter of 2024, our market value presented a decrease of 35%, reflecting the economic scenario that’s challenging and the impact of different factors that have pressured the sector as a whole.

Despite the reduction of market cap, the current volume negotiated allowed our shares to go back to EBX 100, a milestone that shows the relevance of Random Corp and shows the trust of the market in our governance, net, and capacity of generating value. Now I pass the floor to Steban that will detail our economic indicators. Thank you, Paulo. Good morning, everyone. I will start talking about net revenue of the third quarter of 2025. The international revenue continued to be the main factor of growth of this indicator, not only with the expansion and the aftermarket in the retake in several geographies. The causal graph that we bring to the screen shows this evolution. We can see that the external market is the sector that grew the most in the quarterly comparison.

And this amount we see of the addition of the COMSA revenue dating AAXM, companies that were not part of the company in the third quarter of 2024. Other sector that contributes for the advance of our revenue is services, especially if the good performance of Random Consortius. And we have the sectors that were most affected by uncertainty, like agribusiness, industry, and mining and construction, that had a decrease due to the lowering in auto parts and trailers that Paulo mentioned, detailing the revenue of the external market. It’s possible to observe with these plots the meaningful increase of the indicator and its representation facing total revenues of Random Corp, especially of our internationalization strategy. In this third quarter of 2025, USMCA gained relevance when they acquired the COMSA in AXN and the retake of Hercules.

And it’s important to show that the demand in these countries is impacted with the economic uncertainties that are local and new tariff regimes. We had good news in Mercosur and Chile with the retake of sales in the environment due to the favorable business environment to new investments after the economic evolution in the region about EMEA. I highlight revenues through IBS, UK, and the good performance of the vertical control of movement in this geography. In the other regions, the local operations of vertical control of movement, China and India, also presented good performance. Going through adjusted EBITDA, I highlight the important advance comparison to the second quarter of 2025 through to the measures adopted to adequate the structure and the rigorous control of costs and expenses that Paulo and Daniel mentioned.

The biggest recovery in the period was the vertical assembly with 4% point in margin, and the others presented evolution. In the same period, the determining factors for the performance of the indicator in the quarter were pressure and CPV due to the lower dilution of fixed costs and the decrease of truck and trailer market, mitigated partially by the initiatives implemented to adequate the structure during the year. The effects of ramp-up of the operations of Majid Wasu, the results of the incorporated companies to the business in 2025, and the control over SGMA. I remember you that our administrative expenses are 15 million in compared to the COMSA, AXN, and Delta. This value is returned in the depreciation, affecting only the net revenue or net result of the time.

Regarding investments in the third quarter of 2025, we observed a significant decrease compared to the same period previous year. This reduction is according to the initiatives to deleverage and preserve our cash. For the third quarter, we highlight the acquisition of machinery for the COMSA in Mexico, the projects of expansion and capacity and maintenance of Frasley Mobility in Fremaux, and the machinery equipment acquired for the new unit of suspenses in Mojiguazú. This way, I finish my part and I return to the floor to Carol to start our Q&A session. Thank you, Steban. Hello, once again. Before we start the Q&A session, I would like to inform that our present Daniel will not present his presenting the Random Corp at COP30. The questions will be given to Paulo, Steban, David, and Emerson. I remember that the instructions to participate are on the screen now.

Feel free to participate. Our first question of today comes from a subside analyst of Santander, Gabriel Chini. Good morning, Chini. Thank you for your participation. Your mic is now open. You may ask a question. Thank you, Carol. Thank you for the space. First question is more focused in trailers, focused in Brazil. You mentioned the strategy to reduce stock helped the margin. I want to understand more the head forward. Is there something to happen? This perspective first. And an update about potential contracts in rail cars you mentioned in Random Corp. I want to understand more. Second question, more focused in the United States, the head regarding Hercules and the evolution of AXN. We know there are synergies, etc. Hear more about this would be great. Thank you, guys. Thank you, Chini, for your questions.

For the first one regarding trailers, the current situation and the 2026 scenario and rail cars, I will ask Steban to address. Steban also following, if you can talk about here, like Hercules, AXN, it would be interesting. And since Emerson is here, you’re in the US, right? To bring the Frasley vision, yesterday was mentioned in the video conference of Frasley. It can bring a bit of the Frasley perspective from the United States and the local market. Emerson’s closer and can give us context. I’ll start with Steban, then we go to Emerson, then answering the second question. Perfect, David. Thank you, Gabriel, for your question. For following our video conference, it’s not new that the trailer and auto parts or aftermarket has been impacted by the lower volumes of the year, specifically talking about trailers, Demi Hibakis.

We had the perfect storm, which was the combination of all the adjustments that were necessary to adequate the structure with a market that was on a low. After the perfect storm, the third quarter, as we were able to observe, it comes cleaner in terms of one-offs and the profitability of the operation being shown with the results we published. This is the fruit of the adjustments we did. We were able to bring, like for example, a fixed cost reduction, 70 million accumulated in nine months that we are going to benefit from this in the third quarter. And we were able to improve the manufacturing layout, reducing the cost of production that we can observe in the gross margin. Also, the stock plan is successful. We observe also a retake or restart of orders that should come as revenue in the next months.

It’s still early to say it’s a market trend. We still observe overall the press market more than last year compared to last year, around 20%. And when we zoom in in agribusiness, that decreases even higher, around 30 to 40%, depending on the line of products. Looking to the future very cautiously, we believe it’s a scenario that will extend until 2026. But we incorporate a few facts before experience because it happened in previous years. We know it can trigger demand. We know it can start a demand for products. First one, we know an estimate of a record harvest. It should be a great harvest year for our customers.

Second factor that is paramount, being able to have a horizon where a tariff decrease, a horizon of tariff decrease, not necessarily or interest rate, sorry, decrease, not immediately to decrease the interest rate, but a horizon to decrease. The third one that is fundamental is the use of fleet. We know that our customer is using the actives, what’s not renewed this year, helps to increase the aging, the average age of the fleet. This in a moment will translate into demand because the renewal of the fleet will happen of this intensely used fleet. We are confident in this. We kept the productive capacity because then when there’s a restart of demand, we can respond to the market. And we stay in our head the scenario of profitability of this vertical moving forward.

We believe that in this market, when the adjustments are done with the volumes, we believe the profitability that we showed in the third quarter can be defended in the next quarters if the volumes continue as they are. And I’d like to remember the investors that in our business portfolio, the vertical, the assembly that represents 20% of the revenue, revenue that depends most of operational leverage. If the volumes increase, the profitability should follow accordingly. Regarding rail cars, we don’t have anything new with the orders that are ongoing. We continue with negotiation. But the third quarter has recorded the rail cars to Valley. This can impact top line and profitability. Going before I pass the floor to Emerson, quickly, I’d like to mention AXN and Hercules in the United States.

Both operations, especially Hercules here, have had a year better than last year, a lot due to the delivery of a contract in North South Carolina that should finish in the fourth quarter. For now, we don’t have a firm order that’s meaningful. We have a few orders of specific products and repairs, but no order that can substitute the order from the South Carolina port. But we are following at least a restart in quotations. The main impact here is the unstable mood politically and economically due to tariffs makes our customers delay investments. The delay in Brazil is a lot due to the high interest rate in the United States has been due to the lack of predictability and uncertainty of tariff policies. It’s the same scenario that is replicated for AXN.

AXN sales excels for trucks and trailers and is impacted indirectly by a lower demand for trucks and trailers. What, yes, we are doing in that operation is anticipating part of the investments that we had forecast for 2026 for this year in a way that we can get in 2026 with a local manufacturing component that’s to mitigate the tariff and be more competitive locally, believing that the North American market that is four to six times bigger than the Brazilian market will restart at a given moment. And we need to have the productive capacity and be competitive in the market. Now, I pass the floor to you, Emerson, if you want to comment since you are in the US space about US and Mexico also. Perfect. Thank you, Steban. Thank you, David, for the questions.

It’s great to participate and talk a little bit about our vertical movement control vertical and the North American market. Unfortunately, what we are living in the scenario today is not positive. There is a demand that is decreasing around 25% in the year accumulated. The good news is from now on, things don’t get worse. I believe, yes, there is a market retraction. The Class 8 truck market is 320,000, 350,000 units a year. We have a perspective of 250,000, 240,000 units this year. What we see, if we look at the last numbers in the last few months in our base next year, we should have 230,000, but not worse. We are in this level and we signal is these volumes from now on, it should maintain or improve in a bias of improvement in the second semester next year.

This impacts and brings an adjusted perspective for Random Core business, be it Hercules or AXN, as Steban mentioned, competitiveness and increasing demand. What we have seen that this impacted the OEM aftermarket, the vertical control of movement and frazzy overall, the impacted volumes were the items related to heavies and not only US, but Brazil overall, a bit of what we have reflected in Random Core consolidated results. On the other hand, we continue to have a lot of opportunity. I like to see the glass half full. We do have important business in heavies, but we have an intense journey completely open to expand in new product lines with the acquisition of Daconza. We have a new horizon of sales of products and spare parts in the US, more focus on the light line, especially in motors where we have a relationship with Daconza before we acquired.

The intention is the next days we will create consignment unsigned stocks with partners in the United States and at the same time stock of motor parts in Alabama or frazzy mobility in Alabama to meet the demand of a market faster with the aftermarket needs. This has to be built, but I see a lot of positive things will add to the frazzy mobility revenues as a consequence, bringing the improvement to the shareholders. We are not living a very good moment for heavies. The perspectives are not worse. They should maintain and improve. Besides this, we have a pool of opportunities to explore in the future, and this will be beneficial. The market continues, yes, as Steban said, a few times bigger than the Brazilian market.

We want to be here stronger, more present via frazzy mobility or the initiatives that Random Corp has in the last few years with the diversification and is a priority market. It’s a big market, so competition is high, but we have conditions to advance and grow. Thank you. Perfect, guys. Very clear. Thank you. Vamos então para a nossa próxima pergunta. Ela vem de. Now, the next question from Gabriel Rezondi, Southside Analyst at Dow. Good morning, Gabriel. You can ask your question. Your mic is open. Thank you, Carol. Good morning. Eu queria só voltar no ponto do Tini. I would like to go back to Tini’s point about stock and implements to understand how we are thinking about working capital. We’ve seen advance in the third quarter. I want to understand if we have additional advances in the fourth quarter also. And now, two points regarding this.

We saw a mismatch between the decrease in the demand and volume, 30% volume of implements sold in Brazil, 40% decrease in revenue. This is more price or mix? This is another point. Understanding if it’s a sales strategy with discount. Another point in implements. You mentioned about seasonal stop in the assembly lines in the beginning of the year. This comment is more for auto parts. I want to understand if the stop is seasonal or we should have a stop one-off due to this assembly line. Thank you, Gabriel, for your questions. The stock topic Steban mentioned, but we know there are other actions we are doing regarding working capital.

I’m going to pass to Paulo to mention this, what we’re doing in terms of working capital, what we were able to reduce in the third quarter and what we have for the future for the next months and for 2026. And Steban, if you can comment about the assembly or your OEM that we’re having in a year of a difference in mix and volumes. Thank you. Gabriel, good morning. Thank you for your question. Working capital topic is very relevant. Will continue to be extremely relevant for Random Corp as a whole. We had an increase in working capital, as you know, due to the new acquisitions with a dynamic that is different. There’s an adaptation period and also the stocks themselves, especially OEM and auto parts due to the market drop.

Based on this, we did the adjustments in terms of production aligned to the current volumes of the market. And this made from the second to the third quarter, we had an important reduction in working capital. But we didn’t stop there. This reduction continues. Not only in stock, but also improvement in the suppliers, parts, tax, clients. We really are seeking to reduce working capital in such a way that from the end of this year and the beginning of next year, we can go back to the cycle conversion cash levels close to what we had before the acquisitions and this adverse market. We cannot guarantee that we will go back to the levels that we had before due to exactly to a different dynamic.

But the idea is to have, yes, in the last quarter, an additional reduction in working capital, close maybe to the same reduction that we saw in the second to the third quarter. Okay? Thank you, Paulo. Gabriel, adding on regarding the mismatch between volume and revenue. It is a combination of two factors. Part of this, yes, is price. The sales campaign puts the average price a bit lower. Some family of products, the discount was around 5%. But also there’s the mix component, the main issue, the mix more for industrial loads that has been the main demanding sector where we have an average price that is lower than the other products or family of products that we have. Looking forward, the price that depends on us for quarter, we will continue to see this dynamic.

And to improve the mix, we need the demand of agri to come back. While for now, we don’t have this visibility. That’s why we’re not communicating this visibility. Regarding your questions in auto parts, the stoppage announced by the manufacturing are mostly the seasonal stops where random programs to do the stops. Traditionally, the last two weeks of the year and the first week of the next week are we don’t work with very few exceptions. We saw Random and the other OEM working in the period. The rule is a stop to reorganize for the starting for the next year, preventive maintenance, as well as to use the holidays period with higher continuity during the year, more manufacturing capacity for the entire year. I hope I answered your question. Yes, you did. Have a great day. Bom dia. Good day. Thank you.

Let’s go to the next question from Luiz Amulsi, Southside Analyst of Safra Bank. Good morning, Luiz. Your mic is open. You can ask your question. Hi. Good morning. Thank you for the space. Two questions. I want to understand the ramp-up of the contract with Mercedes with the business environment currently, if it’s in your schedule, and a follow-up of how is the GNG situation considering the issue of BPAR also. Thank you. Thank you, Luiz, for the questions regarding the ramp-up of the contract with Mercedes Imersive Brazil. You can tell us the first months, the operation running. E Paulo, following, if you can comment. GNG, BPAR, thank you. Thank you, Luiza, for your question and being online. The ramp-up in Imersive Brazil, especially the contract with Mercedes, is aligned with what we forecast in terms of manufacturing efficiency.

We are meeting the contract practically 100%, also with margins a bit better than we had in the business case, given a higher efficiency than we had used as a premise. Even so, it’s valid to remember it’s a suspensive morgie and custard tech morgie. It’s a ramp-up operation. We still need to seek a bigger revenue of growth to deal with the fixed cost. The current situation, we have reached the ramp-up, but the perspective that we can improve the operation with a dilution of fixed cost going forward. Paulo, can you comment the adiante issue? Okay, Stevan. Luiza, thank you for your question. Regarding adiante, no doubt it’s an investment that’s very promising for the partners we Random Corp and Gerdau. We believe and are committed to the business. Regarding the MBPAR, I believe you’re all following exactly the issue of the judicial recovery.

In this moment, we don’t have any new information to share to the market. We need to wait the period of approximately 60 days to present the recovery, the judicial recovery plan or legal recovery. It’s an important contract. It’s a fair amount for this client. As soon as we have more information or better information regarding this fact, we will share with all of you. Perfeito. Só pela fazer, só follow-up, Steban. Ask you, Steban, when do you expect this operation to be full? Perfect, Luiza. It depends more on the market. Operationally, we have delivered what needed to be done in that operation. Now, we depend on the demand to arrive to reach the business case with the visibility we have today. It’s hard to say if it happens next year, the beginning of the year, in the second semester, or only in 2027. Ficou claro. Obrigada, pessoal.

Great. Thank you. Obrigada, Luiza. Vamos então para a nossa próxima. Thank you, Luiza. Let’s go to the next question. Ana, Southside Analyst of City. Bom dia, Keeper. Keeper Kennedy, good morning, Keeper. You can ask your question. Tudo bem, pessoal? Bom dia. Hi. Congratulations for your results. Thank you for the opportunity. Two, from my side. One, in auto parts, you mentioned during the other questions to summarize a bit. What do you see for this business unit? It’s being impacted by OEM, the acceleration, as you mentioned. I want to understand a bit how we should see this impact being intensified going forward. Fourth quarter, seasonally is weaker. The beginning of next year, I don’t see too many positive perspectives. I want to explore more your vision for this business unit and ask about Mercedes. You answered about that one.

Second question, Steban mentioned that the OEM segment is more exposed to operational leverage. You reported a healthy margin of 6%. I want to explore a bit the adjustments that were made here. What do you see going forward? Also, if you were able to have a meaningful reduction in a year, 58 million, this is a minimum expenses recurrent going forward. And if we should expect a structurally low level of expenses when the market improves, no stronger operational leverage and what do we expect for OEM leverage. Thank you, Keeper, for your questions. In auto parts, we know the scenario has been very complex since last year, not only this year, and we had to do a lot with the car moving, as we say. But Steban, we’ll be able to talk about auto parts, actions, and the perspectives and trailers.

And same thing, we had many changes, many adjustments done, especially in the first semester. We were fast, I believe, in our decision-making and decision. It shows to the market the positive effects, and it continued to have. Steban, it would be interesting to bring the data and perspective for this business for next year. Thank you, Keeper. Steban, the floor is yours. Thank you, David. Keeper, thank you for being online, for covering. Starting with auto parts, it’s less exposed to operational leverage. Also, like on the industrial operation, depends on the demand, depends on volume. Maybe here the good news is that we can do adjustments in the structure faster and that will weigh in less.

We saw part of the adjustments in the second quarter, and something that is stayed in the third quarter is not material, and we can adequate the structure for this level of demand. Remember that the market of trucks this year is decreasing around 5%, but when we look specifically at heavy trucks where we are more exposed, the drop is higher. Some families of heavy trucks, it’s 20% decrease. And auto parts still has a second effect, which is it follows we supply auto parts for trailers, so it ends up having a double impact of the market, the trucks and trailers. With this, the good news is, as I mentioned, the structure is lighter, auto parts are lighter. We can navigate with more profitability, even with this revenue being smaller.

Looking to the future, Keeper, we don’t see any short-term trigger to unlock the truck demand in the Brazilian market. The coverage that helps us, looking at the full glass half full exports, has offset the decrease in the domestic market. We continue to count on the exports for next year also. That should face the demand that is set, bringing additional demand to the domestic market. We believe forward this level of demand, we can observe a profitability level very similar to the third quarter, based on the third quarter, far from the 16% that we would like to observe, which is the average in auto parts. No doubt, going towards as the demand restarts, we can deliver higher levels of profitability. This is fundamental. The Brazil and EDS in the UK, that has helped to sustain the profitability also. This is good news.

The synergies we have captured with EDS and the UK help us to capture part of the profitability, helps to sustain the profitability. Migrating now, changing the topic to trailers for the OEM vertical, we say it’s the Katraka effect. I’m cutting fixed costs, and all of this should be go forward. We shouldn’t loosen the belt as the scenario changes. I invite you to see what happened in 2015, 2016, when we had to adequate. Very similar in terms of structure. And the following years, 2018, 2019, and 2020, where we saw the benefit, a strong recovery in terms of demand that was very fast in a short period of time. At that time, like now, we had preserved the capacity.

We were able to respond to the market in a very fast manner with the full structure, more lean, because we had achieved this with the adequation of our structure. This allowed several benefits at the same time. The fact that we had product allowed us to set price. The market was higher demand, and the higher revenue with a lower cost base brought a lot of profitability. We believe this will happen in the following years, following months, following years, when with the restart of demand. You told us to talk about lessons learned. Here specifically, we need to maintain diligence regarding cost first, cost and expenses. We need to be always vigilant with this. The second point is something that we already apply here in the OEM is to diversify regarding the product portfolio specifically in this vertical.

As Random Corp, the last years, we diversified a lot between verticals, so much so that the OEM represents only 20% of our revenue. It used to be 60% in other years. But in this vertical OEM, we have lessons learned, yes, to diversify the families of products. We have recognized for a very good product in agribusiness, but let’s look at other sectors like liquid transportation and industrial cargo also. It’s a middle-term project. We are working to harvest the fruits in the middle term, but it’s a lesson learned. Third lesson learned is to continue with diversification, market diversification, especially United States and Latin America as a whole. More, we have this as the truth to depend less on the domestic market and penetrating more in the other markets. Bom, vamos então para a nossa próxima pergunta.

Well, let’s go to our next question from Southside Analyst Fernando Urbano of XP. Good morning, Fernanda. We will now open your mic. You can ask your question. Bom dia, pessoal. Good morning. Thank you for the space. It’s a specific question about Gio Compatria. You have an update of this transaction that you should have in the fourth quarter in this topic to understand the expectation for the consortium next year. You mentioned a release, a better perspective in terms of light vehicles and real estate compared to heavy vehicles. To understand your expectation for 2026, considering this profile, the countercyclical nature of the event, and the cut of interest rates during next year. Thank you, Fernanda, for your question. Paulo, please answer this one. Tell us about Patria and the business consortiums. That’s an excellent business.

Now, by chance, we have this opportunity with Patria to develop it more. Now, I pass the floor to you. Bom dia, Fernanda. Good morning, Fernanda. Thank you for your question. Thank you for being with us today. The issue, the closing of the operation with Patria, we expect that it should happen in the fourth quarter. It’s a process that demands many authorizations. They are up to now following as planned. Regarding the perspective of the consortium business, our history always was quite positive in a stable business, we can put it this way. With low interest rate and with high interest rate, of course, now we have a partnership with someone that will add a lot of value for this business. And we will let the market know in an opportune moment our updated strategy based on this JV.

We have a perspective that is higher than always due to the experience that this new partner will bring to the table. All right? É claro, obrigada. Great, thank you. Vamos para a nossa próxima pergunta. Let’s go to our next question from Gabriel Frisão, Southside Analyst of Bank of America. Good morning, Gabriel. You can ask your question. Está conosco, Gabriel? Are you there? Bom, então nós vamos passar para o próximo participante. Well, let’s go to the next participant. And Gabriel, you can hear from him later. Let’s call Marcelo Mota from JP Morgan. Good morning. Mota, it’s good to have you with us in this conference. You can ask your question. Obrigado, Carol. Bom dia, gente. Thank you, Carol. Good morning. Two points. First, about international markets. You mentioned the exports, Argentina and Chile. Argentina, since its high volatility, we have the question of post-election, post-recent events.

The market continues strong. Did you see any changes in the positive trend we saw the last few months, especially the beginning of the year? And the second question about CAPEX. You have guidance. We observe where you are compared to the rest of the year. But thinking about 2026, is there a space for investing last, maybe holding back more due to the recovery of volume in most segments should come in the second half of next year? In other words, I want to understand what is the minimum CAPEX that you need to do every year to keep the operation without expanding the lines that you have. Two points. Thank you. Obrigado, Mota. Thank you, Mota, for your questions. Regarding international markets, I will ask Steban and Emerson to comment, especially to mention Latin South America.

We have Argentina with this situation, political economic situation that sometimes seems unstable, but we hear good news overall. Steban, if you can mention auto parts and trailers, Emerson following movement control. And Paulo, the question about CAPEX, you can comment not only the CAPEX for this year, but also what we see going forward for 2026 and a middle and long-term strategy for the company, starting with you, Steban. Thank you, David Mota, for your question and for being online following us. Argentina has been a good surprise. Looking at the history of the last 10 years, it went through a combination of political, economic instability aggravated by a bad harvest. They had many climate issues, and this caused a perfect storm when we look at the trailer segment.

Last two years, there was a turnaround in meaningful due to the new government and a higher economic stability that it brought, and the harvest has been more positive. Made our operations. Trailers in Rosario unit has presented more consistent results. One of the components that helped to sustain profitability of this manufacturer in Brazil. Looking forward, we don’t see meaningful changes after the elections in Argentina. The mood continues a certain optimism with the reform being done. I think continuity of a good expectation of the harvest. That’s why we believe in this unit and the maintenance of the volumes that we are achieving over there. The same is true, I believe, for Frasley. Right, Emerson can comment a bit about our operation there. Certainly, thank you, Mota, for your question. In fact, we are experiencing, in the case of Argentina, highs and lows.

We are present there since the 1980s as far as the mobility. And in the 90s, we accelerated business. We closed land, focused on distribution. At the end of 2017, we acquired Almatau. It was great for support and access to the market. Argentina is, in Latin America, the second biggest fleet in spare parts. So it’s spare parts is tempting. We have the average age is advanced due to the economic issues that the country has gone through. We keep the market leadership in several product lines that we sell. The last years were marked by the difficulty of exports. We had a limit that the government imposed of importing, exporting for us, which favored us in maintaining the margin levels very aggressive. Once we sold from Brazil to there, we had a reasonable pool of margin.

The scarcity of product there allowed us to have a comfortable margin there. The operation had good results, has good results due to this dynamic. Made the Argentinian market more closed. The operators that were selling had the conditions to repeat, even if minimally, the imports last year due to the quotas available. We were closed for a long time for launching new products. To have an idea, those last months we sold an average. We are selling 34, 35,000 shock absorbers, 12 times more, 12% more. We have the hyperinflation issue, exchange rate that’s volatile due to the movements of the elections previous from this one, which gave more strength to the government that is present currently. Sometimes you have these impacts in your results, but the local market seen in pesos, the support conditions and the leadership we have is very, very good.

We have done all the adjustments necessary to have a round operation, more efficient. We concentrated everything in one place in case of Frasley mobility in Garin. We had Frasley, Larmetal in another, Flow Walk that does the packaging somewhere in another place. Now we are in one place. It has been great in terms of operation. The margins are substantial. The open market imposed a different condition than we had in the past. The margins are more market level than we had in the past. When we talk about other markets, we have advanced a good exposition of South America overall. Frasley mobility has a distribution center in Colombia that supports the Andean America through this hub. With the acquisition of Daconsa, we strengthened our position. We have market leadership in the brake discs and brake pads in Colombia. We have a lot of market participation.

Discs, we are leaders in Colombia, which are the biggest markets in Latin America. Mexico, we acquired Daconsa, and Daconsa is a leader in Mexico. Frasley mobility and Random Corp, we have a leadership position after market Brazil, Argentina, and Mexico. A very relevant position in Peru, Colombia amongst the main players. We have a possibility to advance. We have noticed the last years, not this year, making this clear, a higher influence above all of Asian products. We have a huge advantage. We are in these three markets for decades. Consolidated brands, competitiveness to play to fight against all players. So growth of position strengthened by Daconsa with Prepack, Moresa, that are very much recognized all over Latin America. If we look at globally, if we’re talking about the international market, we continue to grow strong. The UK also launching new products for riding comfort.

We have Impact Line Judo Tech. We forecast Judo Tech Synergy to launch in that market. The first movement were fantastic. Cube for wheels. Current competitiveness that we have with these products. Important targets for Europe for the future. Potentially has additional movement of acquisitions there. Regarding India and China, we grew OI smaller markets. In the case of China, we have the support to serve the European market. The conflicts that we see there, Ukraine-Russia, bring difficulty to these markets. We continue strong. That our presence is strong. We have a bias of maintaining no big perspective of growth to main bias to maintain stronger in the Americas. As I mentioned, we focus a lot in the US. We have a perspective to continue to grow.

Obviously, it’s not just growth for Frasley mobility, but Random Corp and the opening of markets that they can bring, culminated with the synergies that we explore as Random Corp as a whole. Emerson, eu quero te agradecer. I want to thank you. We had a question from Alberto Magno that was asking about the Asian auto parts coming to our market. Thank you for already addressing this in your question, how they impact and the effects, how we can not suffer these effects due to the strength of our brand and our penetration. Claro, por favor. If you allow, we have a cost of shock absorbers competitive with the Chinese. We have hydraulic material competitive against Chinese. Our manufacturing footprint is very strong, and our leverage with co-manufacturing is very strong also. We compete in equal terms.

Obviously, with adverse scenarios, we have advantage to have the channels and the brands. No other player has this like we have constituted just yet. If you allow, Emerson, a combination of three big strengths: brand, cost, price, competitiveness in terms of cost, capacity of distribution, and quality. It makes us very competitive, almost protects us. A level of service, right, Steven? We sell, we deliver, and sell again and deliver again. It’s a long-term relationship. It makes us very attractive to the customers that maintain business with us. Muito bem. I acho que Paulo agora. Very well, Paulo. If you can comment about the CAPEX, expected CAPEX levels, of course. Mota, thank you so much for your question. So this year, you are really being able to follow that this high interest rate. We are more diligent in the issue of CAPEX, especially the organic.

For next year, we’re still working in our planning, but considering that the horizon for next year is indicating an interest rate still very high, you can count on that we will continue to work with the objective to reduce even more or leverage in the management. That’s very disciplined in terms of working capital and CAPEX. We cannot announce in this moment these numbers, but in the opportune moment, we will publish our guidance for 2026. Regarding 2025, you can consider that we won’t have surprises, all right? Perfeito. Perfect. Thank you very much, guys. Nós te agradecemos a tua participação. We thank your participation, Mota. And other ones that ask your questions, now we are finishing the Q&A session. Invite Paulo for closing the event. Obrigado. Okay, Paulo. Thank you, Carol. Muito obrigado aí por estarem acompanhando. Thank you for watching the results for earnings video conference.

Our IT is available in case you have any more questions, doubts, or any questions that were not answered. Have a great day, everyone. Bom dia, pessoal. Até a próxima. Have a great day, everyone.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.