World’s No. 2 Beef Producer Fattens Wages to Lure Workers

(Bloomberg) -- One of America’s biggest beef producers said the industry is raising salaries in the U.S. to attract more workers amid the Covid-19 pandemic.

National Beef, a subsidiary of Brazilian beef producer Marfrig Global Foods SA, sees increasing labor costs continuing into the future, Tim Klein, chief executive officer of the unit said in call with investors Wednesday.

Virus outbreaks have hit workers in meat plants around the globe, especially in North America, forcing plants to shut down or operate at reduced capacity. More workers are failing to show up for their shifts, too.

“Absenteeism has become permanent, prompting meat packers to increase wages to chase workers from other sectors,” Klein said. The company has been able to pass on the additional costs in product prices, as demand has been strong in U.S.

Marfrig is pulling in record revenues as its U.S. subsidiary National Beef sits in a sweet spot between ample cattle supplies and a resurgence in beef demand.

The U.S. economy is firing up as pandemic restrictions ease and restaurants reopen, and Americans are eating more beef as a result. At the same time, the U.S. also has plenty of cattle, because Covid-19 disrupted processing, and ranchers let animals graze on pasture and multiply.

That’s positive for meat packers like National Beef. Marfrig’s net sales in North America jumped 30% to 12.7 billion reais ($2.4 billion) in the first fiscal quarter, with revenues rising 75% to an all-time high for the period.

“Mobility restrictions were already eased in the U.S. with restaurants reopening, and consumption of beef to barbecue is rising,” said Klein. “Beef prices are rising to meet these demands.”

National Beef reported a rise in operating margins to 12% from 8.3%. Tyson Foods Inc., the biggest U.S. meat company, on Monday reported record beef margins of 11%.

“Results may continue to be strong in the second quarter,” he said. National Beef accounted for 73% of Marfrig’s revenue in first quarter.

The U.S. results helped to offset weaker performance in Brazil, where the situation is the exact opposite. Cattle are at record high prices, and Brazilians are eating the least amount of beef in decades. That’s squeezing industry margins.

Marfrig’s South American operating margins dropped 7.7 points to 4.6% in the first quarter, even as the company boosted production in its Uruguay unit by 10% and sold more expensive products, like hamburgers.

“While in Brazil the scenario is more complex, we’ve been exporting more to China where prices have increased amid strong demand,” said Marfrig’s Chief Executive Officer Miguel Gularte. Even in Brazil, larger supplies of cattle in May could boost the company’s slaughter by 40% compared to April.

Marfrig posted net income of 279 million reais in the quarter, compared with a net loss of 137 million reais a year ago. Adjusted ebitda reached 1.7 billion reais, exceeding the 1.65 billion-real average estimate by analysts tracked by Bloomberg. Revenue also beat estimates.

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