Shares in Brazil's Kroton plunge as it misses profit estimates

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By Alberto Alerigi

SAO PAULO, Aug 14 (Reuters) - Shares in Brazilian education company Kroton SA sank nearly 9% on Wednesday after it reported weaker-than-expected results, but Chief Executive Officer Rodrigo Galindo said 2019 operating targets will be reached.

Kroton reported a recurring net income of 266.7 million reais ($66.41 million), 11.4% below a Refinitiv poll of analysts' estimates, as a higher rate of students dropped out in the second quarter. The company said the higher student evasion rate reflects the country's high unemployment rate and sluggish economic recovery.

"The outlook for the second half of the year is still challenging, but tuition for new students are higher," Galindo told analysts in a conference call.

The company also expects K-12 earnings before interest, taxes, depreciation and amortization (EBITDA) to rise by year-end, although Kroton should still be under student evasion pressure. Marketing expenses are likely to decrease by year-end.

Galindo added the company may consider new K-12 acquisitions in 2020. In April 2018, Kroton acquired Somos Educação SA for up to 6.3 billion reais, making a bold move into elementary and high school education.

In a note to clients, BTG's analysts said despite Q2 weak performance, Kroton shows stronger growth prospects in K-12 compared to competitors and synergies from recently acquired Somos basic education business are starting to kick-in.

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