São Martinho, one of Brazil’s largest sugar-energy groups with an approximate crushing capacity of 24 million tons of sugarcane per year, posted net income of R$ 424.1 million ($82M) in the third quarter of the 2025/26 harvest season (3Q26). The result represents a 168.5% jump from the R$ 158 million ($30M) earned in the year-ago period. This is part of The Rio Times’ daily coverage of Latin American markets and financial news.
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The headline profit figure, however, was heavily influenced by non-operational items. The company attributed the gain primarily to the recognition of subsidy credits (subvenção) and to mark-to-market adjustments on its long-term interest rate swap portfolio, which benefited from CDI fluctuations. These positive effects were partially offset by a negative revaluation of biological assets, triggered by the decline in global sugar prices and its impact on the Consecana sugarcane pricing formula.
The operational picture was less favorable. Adjusted EBITDA declined 25.6% year-on-year to R$ 787.1 million ($152M), with the EBITDA margin contracting by 8.0 percentage points to 49.4%. Net revenue fell 13.6% to R$ 1.593 billion ($307M), reflecting a deliberate commercial strategy to defer ethanol sales to the fourth quarter in anticipation of better biofuel pricing.
The most significant driver of the revenue decline was São Martinho’s decision to allocate a larger share of ethanol production to the fourth quarter. The company sold lower volumes of ethanol in 3Q26, betting that biofuel prices would improve later in the harvest season — a strategy that has historically paid off when gasoline parity and seasonal demand dynamics favor Q4 pricing.
Lower volumes and prices of CBIOs (decarbonization credits) further weighed on the top line. Brazil’s RenovaBio program, which mandates the purchase of CBIOs by fuel distributors, has seen pricing volatility as supply has outpaced mandatory targets in recent quarters.
Global sugar prices have been under pressure, with ICE raw sugar futures declining from peaks above 27 cents per pound in late 2023 to the low-to-mid 18-cent range. For São Martinho, this translates directly into lower revenue per ton of sugar sold and, critically, into negative biological asset revaluations through the Consecana pricing mechanism.
The Consecana formula, which determines sugarcane pricing paid to suppliers in São Paulo state, is linked to sugar and ethanol market prices. As sugar prices fall, the value of standing sugarcane crops (biological assets) on the balance sheet must be written down — a non-cash charge that nonetheless depressed the bottom line.
While the core sugar and ethanol segments contracted, São Martinho’s diversified revenue streams provided partial compensation. Electricity cogeneration revenue rose 6.2%, benefiting from favorable spot market conditions for biomass-generated power. Yeast revenue nearly doubled (+97.0%), reflecting growing demand from the food and animal feed industries. DDGs (dried distillers grains) revenue grew 7.4%, adding to the company’s non-sugar revenue base.
Net debt reached R$ 5.8 billion ($1.1B) as of December 31, 2025, a 17.5% increase compared to the same date in the prior year. The expansion was driven primarily by new debt issuances, with the company tapping the debenture market and issuing Agribusiness Receivables Certificates (CRAs) to fund operations and capital expenditures.
São Martinho operates four mills — São Martinho, Iracema, Santa Cruz, and Boa Vista — with a combined crushing capacity of approximately 24 million tons of sugarcane per season. The capital-intensive nature of the sugar-energy business, combined with ongoing investments in agricultural productivity and industrial efficiency, has driven the increase in leverage.
The 168.5% net income growth was largely a function of below-the-line items rather than operational improvement. Subsidy credits (subvenção) — tax incentives related to state-level ICMS benefits — provided a significant boost. Additionally, the mark-to-market gains on CDI-linked interest rate swaps reflected the volatile Brazilian rate environment, where the Selic rate has remained elevated.
Stripping out these non-recurring and non-cash items, the underlying operational performance was weaker, as evidenced by the 25.6% decline in adjusted EBITDA and the 8.0 percentage-point margin compression.
São Martinho’s decision to defer ethanol sales to the fourth quarter signals management’s conviction that biofuel pricing will improve as the inter-harvest period approaches. This is a recurring strategic pattern for the company, which has historically optimized its commercial calendar to capture seasonal price peaks.
The company’s conference call is scheduled for Tuesday, February 10, 2026, at 01:00 US Eastern Time. Investors will be listening for guidance on fourth-quarter ethanol pricing expectations, the outlook for sugar prices given the global supply surplus, and plans for managing the elevated debt load.
The strong growth in yeast (+97%) and electricity cogeneration (+6.2%) revenues suggests São Martinho is actively diversifying beyond its traditional sugar-ethanol core. Brazil’s expanding corn ethanol capacity — which StoneX estimates will push combined cane and corn ethanol production up 7.9% in 2026/27 — represents both a competitive threat and a potential opportunity for established players with processing infrastructure.
Fourth-quarter ethanol volumes and pricing will be the single most important variable for the full-year result. São Martinho’s bet on deferring sales only pays off if Q4 ethanol prices materially exceed Q3 levels. With Brazil on track for a 7.9% jump in ethanol production in 2026/27 according to StoneX, the supply-demand balance for biofuels will be closely watched.
Global sugar prices remain the key external risk. Higher global production — Safras & Mercado projects Brazil’s 2026/27 sugar output will decline 3.9% to 41.8 million metric tons, but India and Thailand are ramping up — could keep prices in the current depressed range, continuing to pressure both revenue and biological asset valuations.
The trajectory of São Martinho’s net debt deserves monitoring. At R$ 5.8 billion and rising 17.5% year-on-year, leverage is increasing at a time when the Selic rate remains elevated, making debt service more expensive. The company’s ability to generate strong free cash flow in Q4 — traditionally the strongest quarter for ethanol sales — will be critical for stabilizing the balance sheet.
| Metric | 3Q26 | 3Q25 | Change |
| Net Income | R$ 424.1M ($82M) | R$ 158M ($30M) | +168.5% |
| Adj. EBITDA | R$ 787.1M ($152M) | R$ 1,058M ($204M) | −25.6% |
| EBITDA Margin | 49.4% | 57.4% | −8.0 pp |
| Net Revenue | R$ 1.593B ($307M) | R$ 1.844B ($355M) | −13.6% |
| Electricity Revenue | — | +6.2% YoY | |
| Yeast Revenue | — | +97.0% YoY | |
| DDGs Revenue | — | +7.4% YoY | |
| Net Debt (Dec 31, 2025) | R$ 5.8B ($1.1B) | R$ 4.9B ($949M) | +17.5% |
| Market Cap | ~R$ 5.0B ($967M) | — | |
| Stock Price (SMTO3) | ~R$ 14.99 | Consensus PT: R$ 21.51 | |
Source: São Martinho 3Q26 earnings release, São Martinho IR, Bloomberg, MarketScreener, StoneX, Safras & Mercado. Exchange rate: ~5.19 BRL/USD.
São Martinho operates in a Brazilian sugar-energy sector facing a complex set of cross-currents. On one hand, Brazil remains the world’s dominant sugar producer, and ethanol demand continues to grow as the country’s flex-fuel vehicle fleet expands and the RenovaBio decarbonization program mandates increasing biofuel consumption. On the other, global sugar prices have retreated sharply from 2023 highs, and the rapid expansion of corn ethanol capacity in Brazil’s Center-West region is adding competitive pressure to traditional sugarcane-based producers.
StoneX estimates Brazil’s combined cane and corn ethanol production will grow 7.9% in 2026/27 to 36.5 billion liters, with corn ethanol accounting for an increasing share. Meanwhile, Safras & Mercado projects Brazil’s sugar production will decline 3.9% to 41.8 million metric tons in 2026/27, as mills shift more sugarcane toward ethanol production in response to relative pricing signals.
SMTO3 shares have been under pressure, trading near R$ 15.00 — down from a 52-week high of R$ 23.48. The analyst consensus target of R$ 21.51 implies roughly 46% upside, with nine analysts covering the stock maintaining a consensus “Hold” rating. The disconnect between the depressed share price and the analyst target reflects uncertainty about the sugar price cycle, the pace of ethanol market recovery, and the company’s ability to manage its rising debt load in a high-Selic environment.
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