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The ASX 200 stock hit by the Brazilian COVID-19 wave

Stylised portrayal of virus outbreak on blue background
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The fallout from Brazil’s COVID-19 catastrophe is reaching the shores of the ASX!

Laboratory testing services group ALS Ltd (ASX: ALQ) took a $50 million hit to its bottom line due to the growing crisis in the region when it unveiled its full year profit.

Brazil’s economy is taking a big beating and the worst is yet to come. The number of coronavirus deaths in Brazil is projected to surge to nearly 126,000 by August, according to the Institute for Health Metrics and Evaluation at the University of Washington in Seattle.

Grim forecast reported in the Australian Financial Review is 42% higher than the IHME’s first projection released on May 12.

New COVID-19 epicentre

Brazil is fast becoming the epicentre for the COVID-19 pandemic as its defiant president Jair Bolsonaro refuses to implement any strict measures used in other countries to curb the outbreak.

This, combined with the country’s poor health care system, spells bad news for not only Brazil but its neighbours.

The impact is felt at ALS where its full year statutory profit slumped by $24.8 million to $127.8 million. Management also sliced its final dividend by nearly half to 6.1 cents from 11.5 cents a share.

ALS jumps on profit result

But the news didn’t bother investors. The ALS share price jumped 2.8% during lunch time trade to $7.25 when the S&P/ASX 200 Index (Index:^AXJO) is struggling at breakeven.

This is because underlying net profit (which ignores one-off issues) increased 4.3% to $188.8 million as revenue improved 10% to $1.83 billion in FY20.

That’s in-line with its guidance range of $185 million to $195 million. In this climate, hitting guidance is an achievement in itself!

Growth across divisions

Despite the disruption to its Latin American operations and the drop in demand from oil and gas customers, its Life Sciences, Industrial and Commodities divisions posted growth, even on an organic basis.

Management also boasted about its strong balance sheet with around $650 million of liquidity available. This includes an extra $200 million of debt it recently secured with its banks.

ALS said it’s shown resilience during the COVID-19 pandemic so far due to a diverse portfolio of businesses and geographies, with many of its services deemed as “essential businesses”.

ALS isn’t the only ASX company exposed to Brazil and Latin America. Some of our miners like Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) also have operations in the region.

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Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd and South32 Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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