Bad Bet on Inflation Drains Protein Profits for Brazil’s BRF
(Bloomberg) -- The world’s second-largest poultry supplier is selling more than ever as pandemic-hit consumers seek cheaper protein options. But inflation is gobbling up all its profit.
BRF SA is suffering from surging prices in Brazil -- and not just pricier corn to feed its birds. In the second quarter, the Sao Paulo-based firm’s financial expenses skyrocketed, partly due to debt linked to Brazil’s inflation index, which rose to 4.61% from 0.99% a year earlier.
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By tying a chunk of its debt to Brazilian inflation, BRF is paying a heavy price for a consumer-price reading that’s tracking well above target.
The country’s severe drought is pushing up crop prices, while a global recovery is keeping other raw materials expensive. A shaky domestic economic rebound is limiting the company’s ability to pass on those costs to consumers.
Adding insult to injury, BRF was also hit with a mark-to-market loss on a put option related to improvements in its operations in Turkey. Those bottom-line woes contrast with record-high sales that exceeded analysts’ expectations.
Better margins in the year’s second half are expected as a result of more balanced ratio between costs and sales prices, Sidney Manzaro, vice president for BRF’s Brazil unit, said in a conference call with investors on Friday. Manzaro cited increasing chicken and pork consumption in Brazil, along with sales of higher value-added products that remain firm above pre-pandemic levels, as drivers for the recovery.
Even with the favorable price and demand outlook, cost pressures remain the central issue for the company, XP analysts Larissa Perez and Leonardo Alencar said in a report. The exchange rate and grain prices present a risk to the expected margin recovery, they said.
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