Brazil’s Natura & Co delivered a surprise margin gain in the fourth quarter, dealing a blow to skeptics who question whether the cosmetics maker can become a global beauty powerhouse.

The firm, which acquired Avon Products Inc. less than three years ago and is also the owner of the Natura, Body Shop and Aesop brands, saw its adjusted Ebitda margin rise by 90 basis points from a year earlier to 13.3 percent, the Sao Paulo-based company said Wednesday in a statement. Analysts were expecting a 180 basis-point drop.

“We were able to mitigate inflationary pressure and higher input costs through faster-than-expected synergies from the Avon integration and price management,” chief executive officer Roberto Marques said in an interview.

Despite the beat, Natura is reassessing some investment plans and reducing discretionary spending as cost pressures will likely worsen in the first half of the year, according to Marques. “We’re bracing for a really challenging scenario,” he said.

The company’s shares closed 16 percent higher in Sao Paulo Wednesday ahead of the release. The stock is still down 50 percent in the past 12 months, underperforming the benchmark Ibovespa index by about 48 percentage points as investors had been growing concerned about the outlook after the firm postponed its 2023 margin goal by a year. Last month, Brazilian asset manager Neo Investimentos said its long-only equity fund Neo Navitas closed its Natura position.

Russia impact

The war in Ukraine has led Natura to halt operations of Body Shop and Aesop franchisees in Russia, Marques said. Avon also suspended exports from its Russian plant to other countries. Russia currently accounts for less than 5 percent of the company’s revenues, according to him.

The Russian plant continues to supply Avon direct-sales representatives locally so they can keep their professional activities. “There’s no financial advantage,” Marques said. “We simply don’t want to turn our backs on these representatives.”

By Vinícius Andrade

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