Lavoro's Restructuring: A Catalyst for 2026 Recovery and Valuation Upside in Ag Retail

The agricultural retail sector in Brazil faces a pivotal moment. After years of liquidity crises, supply chain bottlenecks, and erratic commodity prices, Lavoro—a once-struggling leader in agricultural inputs—is now positioned to capitalize on its restructuring efforts. By stabilizing inventory financing through the EJ Plan, reducing costs via store closures, and leveraging tailwinds in Crop Care, Lavoro's fiscal 2026 could mark a turning point for margin rebound and multiple expansion. Here's why investors should pay attention.

Supply Chain Resilience: The EJ Plan's Quiet Triumph

The EJ Plan's impact on inventory financing is foundational to Lavoro's recovery. In 2024, Brazil's agricultural sector faced a liquidity crunch as major players like Agrogalaxy collapsed under debt, prompting lenders to tighten credit. Lavoro's response—a R$420 million secured credit facility in late 2023—was a masterstroke. By extending debt maturity profiles and securing lower interest rates (e.g., CDI +3% for Series I), the company stabilized working capital and reduced refinancing risks.

This restructuring has two critical effects:
1. Inventory Stability: The credit facility, combined with renegotiated supplier terms, has eased restocking pressures. Lavoro's soybean cycle shortages in late 2024—linked to delayed financing—have been mitigated, ensuring smoother operations for 2025's harvest.
2. Geographic Focus: Closing 70 stores (one-third of its Brazilian footprint) has centralized resources in high-potential markets. By trimming redundant operations, Lavoro now allocates capital to regions with stronger farmer liquidity and better logistics access.

Financial Turnaround: FY2026 as the Inflection Point

Lavoro's decision to withdraw FY2025 revenue guidance was not a retreat but a strategic move. By sidelining near-term expectations, the company removes the risk of missing targets tied to volatile commodity prices and the real's depreciation. Instead, investors should focus on FY2026, where three factors align:

1. Margin Stabilization:
2. Gross margin improved to 15.6% in Q1 2025, despite a 13% revenue drop. This signals cost discipline and better procurement.

4. With fixed costs reduced post-closures, EBITDA margins could expand further in 2026.

5. Crop Care's Regulatory Tailwinds:

6. The Crop Care segment (pesticides, fertilizers) saw a 68% revenue surge in Q1 2025. Regulatory shifts favoring eco-friendly inputs and precision agriculture are driving demand. Lavoro's partnerships with global suppliers (e.g., Union Agro and Perterra) position it to capture this growth.

7. Commodity Market Recovery:

8. Soybean prices, a key driver for Brazil's ag sector, have rebounded 15% year-to-date 2025 amid tight global supplies.
9. Higher commodity prices improve farmer profitability, reducing defaults and boosting demand for inputs—a virtuous cycle for Lavoro.

The Long Game: Standardized Supplier Terms as a Competitive Moat

Lavoro's push for standardized supplier agreements is often overlooked but critical. By locking in terms with key partners, the company reduces input cost volatility—a major risk in ag retail. This not only stabilizes margins but also creates predictability for long-term planning.

The result? A leaner, more agile supply chain that can outpace rivals still burdened by legacy debt and fragmented operations.

Investment Thesis: Buy the Dip, Play the Recovery

Lavoro's stock—though not publicly traded—is a prime candidate for institutional investors seeking exposure to Brazil's agricultural recovery. Key catalysts for multiple expansion in 2026 include:
- Debt Reduction: The R$420 million facility replaces short-term debt, lowering interest costs by an estimated R$50 million annually.
- Store Closures: Savings from reduced overhead (e.g., staffing, leases) could add 10-15% to EBITDA margins by 2026.
- Crop Care Upside: With global demand for sustainable inputs surging, Lavoro's segment could grow at 20%+ CAGR through 2027.

Risks to Monitor

• Commodity Volatility: A sudden drop in soybean prices could delay farmer recoveries.
• Policy Uncertainty: Brazil's Plano Safra reforms remain critical; missteps could reignite liquidity issues.

Conclusion

Lavoro's restructuring is no longer about survival—it's about dominance. By addressing liquidity risks, sharpening its supply chain, and capitalizing on Crop Care's growth, the company has set the stage for a 2026 rebound. For investors, the opportunity lies in buying into a resilient ag retailer at a discounted valuation, poised to benefit from both structural improvements and a cyclical commodity upturn. The EJ Plan's legacy? It didn't just save Lavoro—it positioned it to lead Brazil's agricultural renaissance.

Investors should consider Lavoro as a long-term play on agricultural supply chain resilience and margin expansion, with 2026 earnings likely to outperform pre-restructuring expectations.