What are the key drivers behind the positive cash generation and which markets contributed most?

Key Drivers of the Positive Cash Generation

The press release highlights two primary levers behind the stronger cash flow: (1) Mature integration of the Natura and Avon brands (the “Wave 2” rollout) and (2) favourable working‑capital dynamics. In the second‑quarter period, the markets that have already combined the two brand portfolios (e.g., Brazil, Colombia, and Uruguay) are now reaping “synergy‑driven” efficiencies—higher cross‑sell rates, reduced duplicate SG&A, and a more streamlined supply chain. This “maturity effect” translates into higher gross margins and a quicker conversion of sales into cash. A secondary, but still important, factor is the improvement in working‑capital components (lower inventories, tighter receivables and payables), which frees up cash without requiring new capital. The announced corporate streamlining and the pending sale of Avon International within 12 months add a layer of visibility, allowing management to allocate cash more efficiently and to fund the integration program without diluting cash flow.

Market Contributions and Trading Implications

The “Wave 2” markets—particularly Brazil (Natura’s home market), Colombia, and other mature Latin‑American jurisdictions where the Avon‑Natura merger is fully operational—account for the bulk of the cash generation. In Brazil, the combined product mix has delivered higher per‑unit profitability and faster inventory turnover, while in Colombia the newly aligned brand portfolio has unlocked new distribution channels and reduced per‑unit cost. These regions are also where the company is likely to see the greatest impact from the upcoming sale of Avon International, which will further clean the balance sheet and potentially boost free‑cash‑flow guidance for FY‑2025.

Actionable Outlook

From a trading standpoint, the combination of robust cash flow and a clear “sell‑Avon‑International” catalyst supports a bullish bias on the stock. Technicals show the price above its 50‑day moving average and the Relative Strength Index (RSI) sitting near 55—still in the bullish zone but with room for upside. The sentiment score of 60 reflects modest optimism; however, the fundamental catalysts (integration progress, working‑capital improvement, and the impending divestiture) give a conviction‑level long for traders with a 3‑6‑month horizon, especially at levels near the current support zone (~BRL 30). Watch for the next earnings release for confirmation on cash‑flow targets and any updates on the timing of the Avon International sale, which could act as a catalyst for a short‑term rally.