Cosan's 2Q25 Earnings: Navigating EBITDA Volatility and Strategic Divestments

Cosan's 2Q25 earnings report paints a mixed picture of resilience and vulnerability in a cyclical energy and infrastructure portfolio. While the company's strategic divestments and liability management efforts are commendable, its EBITDA volatility and debt burden remain critical hurdles. Let's dissect the numbers and assess whether Cosan's capital structure optimization can stabilize its long-term trajectory.

Operational Resilience: Mixed Signals in a Cyclical Portfolio

Cosan's 2Q25 EBITDA under management fell to R$6.0 billion, down from R$7.3 billion in 2Q24, reflecting sector-specific headwinds. The logistics segment showed strength, with a 9% increase in distributed volume and a 4% rise in transported volume (21.8 billion RTK). However, the lubricants business slumped 13%, and sugarcane crushing dropped 21% due to weather and fire-related disruptions. This highlights the inherent risk in Cosan's diversified but cyclical operations.

The company's ability to maintain a stable net debt of R$17.5 billion despite these challenges is a positive. Yet, the Debt Service Coverage Ratio (DSCR) of 1.2x LTM remains precarious, especially as interest coverage is projected to dip below 1.0x in 2Q25. This is not a covenant trigger, but it underscores the fragility of Cosan's financial flexibility.

Capital Structure Optimization: A Race Against Time

Cosan's 25.5% reduction in net debt—driven by the Vale stake sale—was a lifeline in Q1 2025. The proceeds (R$9.1 billion) were used to redeem high-cost debt and extend maturities, lowering the average cost of debt to CDI+0.91% from CDI+1.40%. This refinancing is a step in the right direction, but the company's gross debt still stands at R$25.6 billion, with average annual amortizations of R$3.3 billion through 2029.

The CEO's acknowledgment that “reducing debt to zero is unrealistic” is telling. Instead, the focus is on a 30% reduction in remaining debt—a target that hinges on selling non-core assets like Radar land, the São Luís port, and potentially diluting stakes in Raízen. These moves could stabilize the capital structure, but they also risk diluting shareholder value if executed at suboptimal prices.

Strategic Divestments: Opportunity or Overreach?

Cosan's asset sales strategy is aggressive but necessary. The Vale stake sale was a textbook example of leveraging non-core holdings to delever, but the fire-related compensation in the lubricants segment (boosting EBITDA by 39%) raises questions about the sustainability of such gains. Investors must ask: Can Cosan replicate this success in other divestments, or will it face similar one-time windfalls?

The company's willingness to dilute stakes in Raízen and explore strategic partners in energy and renewables is a double-edged sword. While it could unlock value, it also signals a retreat from core operations. For a company with a 59.09% stock price drop over the past year, this could erode investor confidence.

Investment Implications: Balancing Risk and Reward

Cosan's 2Q25 results highlight a company in transition. The operational resilience in logistics and the progress in liability management are positives, but the EBITDA volatility and debt burden remain red flags. The stock's 24.39% decline in three months reflects market skepticism about its ability to execute its deleveraging plan.

For investors, the key question is whether Cosan's capital structure optimization can outpace its operational challenges. The Financial Health score of “fair performance” suggests a fragile balance sheet, and the mixed EPS revisions indicate uncertainty about future earnings.

Actionable Advice:
1. Monitor Divestment Progress: Track the pace and pricing of asset sales. A successful São Luís port sale could signal improved execution.
2. Watch Debt Metrics: Focus on DSCR and interest coverage ratios. A decline below 1.0x could trigger a credit rating downgrade.
3. Assess Sector Exposure: Given the cyclical nature of energy and infrastructure, diversification into renewables (via Raízen) could mitigate risk.

Conclusion

Cosan's 2Q25 earnings underscore a company navigating a high-stakes balancing act. While strategic divestments and refinancing efforts are prudent, the path to a sustainable capital structure is fraught with challenges. For long-term investors, the key will be whether Cosan can stabilize its debt while maintaining operational resilience in a volatile sector. Until then, the stock remains a high-risk, high-reward proposition.