Brazil's BRF shares tumble after posting major Q1 losses

The company is looking to simplify its structure
calendar icon 6 May 2022
clock icon 2 minute read

Brazilian food processor BRF SA on Thursday attributed disappointing first-quarter results to a rise in costs and inflation in its domestic market, and vowed to boost its margins and return to profitability, reported Reuters.

In separate calls with analysts and journalists to discuss the results, BRF Chief Executive Officer Lorival Luz said management is preparing measures "to simplify" the company's structure, declining to elaborate.

He said the plan does not involve asset sales or factory closures.

"We will change the way we operate in all areas of the company, we will simplify processes and procedures," Luz said, adding that some of the measures will be introduced this month. "The aim is to become more dynamic and effective, to work with agility towards our goals of growing and posting profits in a sustainable way."

The poultry and pork processor posted a loss of 1.5 billion reais ($298.5 million) in the first quarter, and burned more than twice that amount in cash as it weathered the economic downturn in Brazil.

The results reflected poor food sales and margins in the South American country and the impact of a derivative-related write-off of 406 million reais.

BRF's new Chief Financial Officer Fabio Mariano said the expense tied to a corn derivative position had to be recognized in the first quarter.

"When we look back, it was not quite the right decision," he said in response to a question from Reuters, referring to the merit of that hedge position.

BRF shares were down around 12% at one point in morning trading before paring losses to trade 6.3% lower in Sao Paulo, making it one of the biggest losers on the exchange.

Credit Suisse analysts said BRF was going through "testing times."

"We believe consensus will significantly trim their estimates to reflect the somewhat unexpected new scenario," the analysts wrote. "The company’s production chain is long and complex, which demands a few quarters to get it back on track again."

Referring to the first-quarter results, JP Morgan said "we didn’t see that coming," and downgraded the stock to underperform.

"We think the macro scenario remains challenging, with corn prices near all-time highs and logistics costs at elevated levels, while China lockdowns pose risks to a big part of BRF's export market," JP Morgan said.

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