Quarterly earnings of Brazil’s Ibovespa index decreased 45.5% (year-over-year) during the first quarter (2020 Q1) of this year. This significant plunge in earnings is mostly due to large quarterly losses posted by some of the largest financial companies of Brazil, including Itau Unibanco SA and Bank Bradesco SA. If financial companies are excluded, the quarterly earnings for 2020 Q1 increased 10.2% compared to 2019 Q1.
Note: The earnings that are used are operating earnings that exclude unusual expenses, interest expenses and taxes.
Bovespa (IBOV) Index – Quarterly Earnings & Earnings Growth
Ibovespa Quarterly Earnings in Q1 2020
The combined earnings of the Bovespa index companies declined sharply in Q1 when compared to the first quarter of the last year. The main reason for this is the large operating losses posted by Itau Unibanco SA, Bank Bradesco SA and Banco Santander (Brasil) SA. If all financial companies are excluded, the earnings of non-financial companies increased 10.2% compared to the last year.
In dollar terms, the decline in earnings was even larger. When operating results are converted into U.S. dollars, quarterly earnings fell 59.0%. In Jan 1st, 2019, one U.S. dollar was 3.88 Brazilian reals. In March 31st, 2020, one dollar was 5.20 reals.
The quarterly operating income of Petrobras (Petróleo Brasileiro SA) was R$24,848 million. This figure does not take account the R$55,626 million write-off related to impaired assets that the company posted for Q1. If the write-off is taken account, the net income (loss for the period) of Petrobras for Q1 was staggering R$-48,523 million.
How the data has been calculated?
The quarterly earnings that are used by Siblis Research are the total quarterly operating earnings of all companies belonging to the Ibovespa index. Operating earnings are calculated as gross income deducted by operating expenses. The operating expenses include selling, marketing, general and administrative expenses.
The operating expenses do not include unusual expenses, interest expense and income taxes. When we have calculated the operating earnings, we have also excluded large write-offs, e.g. the US$13.4 billion impairment expense reported by Petrobras for the first quarter of 2020.
The table above also includes earnings per share figures for Ibovespa. To calculate earnings per share for an equity index, the total quarterly earnings need to be divided by an index divisor. A divisor of a stock index is a figure used to calculate the nominal value of a price-weighted market index. The divisor is constantly changing to take account e.g. constituent changes, stock splits and buybacks to ensure the continuity in index values.
The Bovespa Index (Índice Bovespa)
Ibovespa is the benchmark equity index for Brazilian stock market. At the moment, the index includes 70 companies that are listed on the B3 stock exchange. The largest constituent part of the index are Petrobras, Vale SA, Itau Unibanco SA and B3. The number of the components is not fixed and has steadily kept increasing (in January 1998 there were only 45 constituents). In April 2020, the total market value of the index constituents was R$2,774,385.7 million or US$730,216.8 million. The index was created in 1968.