Suzano SA looks past record loss on weakened Brazilian real

Despite reporting a record loss, Suzano SA, the world's largest wood pulp supplier, still manages to report optimism driven by the potential future benefits of a weakened Brazilian currency. The depreciated real, while it inflates the company's foreign debt and reduces the fair value of its derivatives, is expected to boost cash from international sales.

"The more depreciated the currency, the more cash Suzano will generate," Chief Financial Officer Marcelo Bacci said in an interview. The weak currency bolsters revenue from pulp sales, mostly in the US dollar, he said. Most reported losses are due to accounting, with actual cash disbursements related to derivative losses only occurring at expiration. Such influences will be compensated for, he added, by the strong cash flow from continuous sales.

The Sao Paulo-based company posted a loss of BRL 3.77 billion ($680 million) for the quarter ended June, the largest quarterly loss for a comparable period since 1998, compared to a profit of BRL 5.1 billion a year ago. The average estimate from analysts surveyed by Bloomberg was for a profit of 2.13 billion reais.

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Even with the financial setback, Suzano's strong operational performance still keeps it buoyed by the high prices of pulp and bigger sales volume. Earnings before interest, taxes, depreciation, and amortisation surged 60 per cent from the previous year, reaching 6.29 billion reais.

Looking ahead, Suzano said it expects sales volumes to be higher in future quarters, thanks to a new mill that started up in July. That's set to aid results even as pulp prices in top importer China started to trend down recently, CEO Beto Abreu said.

Despite the depreciated real and record losses, the Suzano company is positioned to leverage its operational strengths. Weakened currency, coupled with recently added production capacity, can easily turn into a driver for stronger financial performance in the near future.